- ADP job change is forecast to hit 145,000 in August.
- Labor market conditions could influence the Fed’s policy outlook.
- The US dollar is holding firm against its rivals after posting heavy losses in August.
The Automatic Data Processing (ADP) Research Institute will release its monthly report on private sector job creation for August on Thursday. The announcement, known as the ADP employment change, is expected to show that the country’s private sector added 145,000 new jobs in August, following an increase of 122,000 in July.
The survey is typically released a couple of days before official nonfarm payrolls (NFP) data (not this month, as it will be released the day before), and despite random divergences in the result, market participants tend to read it as a leading indicator of the Bureau of Labor Statistics (BLS) employment report.
ADP Employment Report: Employment and the Federal Reserve
After keeping monetary policy settings unchanged in July, the Federal Reserve (Fed) has seemingly turned its attention to the labor market, with inflation readings giving policymakers enough confidence about further progress toward the central bank’s 2% target. In its policy statement, the Fed noted that it is watching risks on both sides of its dual mandate, a shift from the June statement, in which it said it was “very vigilant” about inflation risks.
Speaking at the Jackson Hole Economic Symposium on August 23, Fed Chairman Jerome Powell acknowledged that the time has come to tighten monetary policy. “We will do everything we can to support a strong labor market as we move toward price stability,” Powell said.
According to CME’s FedWatch tool, markets are currently pricing in a nearly 30% chance that the Fed will cut the policy rate by 50 basis points (bps) at the next policy meeting. Should the ADP report suggest that private-sector employment rose at a stronger-than-expected pace in August, market participants might refrain from pricing in a large rate cut in September. On the other hand, a disappointing ADP reading near 100,000 could fuel growing fears about cooling conditions in the labor market and allow markets to remain hopeful for a 50-bps rate cut, at least until the BLS releases August employment figures on Friday.
When will the ADP report be released and how could it affect the USD index?
ADP will release its employment change report on Thursday, September 5. Investors are expecting a 145,000 increase in private sector payrolls.
Following the 208,000 increase recorded in March, private sector employment growth has been growing at a slower pace, reaching 122,000 in July. Should there be a notable rebound in this data, with a reading close to 200,000, the US Dollar (USD) could outperform its main rivals with the immediate reaction. However, another disappointing reading could have the opposite effect on the USD valuation.
Eren Sengezer, Lead Analyst for the European Session at FXStreet, shares a brief technical outlook for the USD Index (DXY):
“The DXY lost more than 2% in August and touched its weakest level since July 2023 near 100.50 on August 27. Although the index managed to rebound from this level, the short-term technical outlook is yet to provide a convincing signal of a reversal of the bearish trend.”
“On the upside, the 20-day Simple Moving Average (SMA) lines up as immediate resistance at 102.00. In case the DXY rises above this level and confirms it as support, technical buyers might show interest. In this scenario, 102.65 (38.2% Fibonacci retracement of the latest uptrend) could be seen as the next upside target before 103.30 (50% Fibonacci retracement). Conversely, 101.00 (static level) lines up as the first support before 100.50 (end point of the downtrend) and 100.00 (psychological level).”
US Dollar FAQs
The United States Dollar (USD) is the official currency of the United States of America, and the de facto currency of a significant number of other countries where it is in circulation alongside local banknotes. As of 2022, it is the most traded currency in the world, accounting for over 88% of all global foreign exchange transactions, equivalent to an average of $6.6 trillion in daily transactions. Following World War II, the USD took over from the British Pound as the world’s reserve currency.
The single most important factor influencing the value of the US dollar is monetary policy, which is determined by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and to promote full employment. Its main tool for achieving these two goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises rates, which helps the dollar. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a jammed financial system. It is an unconventional policy measure used when credit has dried up because banks are not lending to each other (for fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy US government bonds, primarily from financial institutions. QE typically leads to a weakening of the US dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing securities in new purchases. It is generally positive for the US dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
