Non-farm payrolls (NFP) data is one of the most influential economic indicators in traditional markets, especially forex and stocks. Its connection to cryptocurrency markets has become more evident in recent times as the traditional and digital financial system become more intertwined.
Does NFP data affect cryptocurrencies?
1. Impact on the dollar and thus on digital currencies:
Cryptocurrencies, especially Bitcoin (BTC) and Ethereum (ETH), are priced primarily against the US dollar. If the NFP data comes out positive, it means strength in the US economy, which leads to a stronger dollar. A stronger dollar makes alternative assets like cryptocurrencies less attractive, and may lead to a decline in their prices.
Conversely, if NFP data is weak (declining employment or slow growth), the dollar weakens, encouraging investors to look for alternative assets such as cryptocurrencies.
2. Impact on Federal Reserve decisions:
NFP data is also used to determine the Federal Reserve’s monetary policy. If the data shows a strong labor market, it could lead to higher interest rates. Higher interest rates reduce available liquidity and put pressure on riskier assets like cryptocurrencies. Conversely, weak data could lead to accommodative monetary policies, boosting demand for cryptocurrencies.
This leads to instantaneous volatility in the crypto market when NFP data is released, with markets experiencing sharp swings due to investors’ instant reactions. This effect extends to the crypto market, where we see pairs like BTC/USD or ETH/USD move significantly within minutes of the data being released.