- The ADP survey is expected to show that the private sector added 148,000 new jobs in March.
- The Federal Reserve has made clear that it is in no rush to cut interest rates.
- The US dollar is trading with a firmer tone in a risk-averse environment.
On Wednesday, the U.S. Automatic Data Processing (ADP) Research Institute will release private employment data for the month of March. The survey provides information on private sector job creation and is typically released two days before the official employment report from the Bureau of Labor Statistics (BLS), which includes Nonfarm Payrolls (NFP) data.
According to market analysts, the ADP survey is expected to show that 148,000 new jobs were added in March, slightly up from 140,000 in February. However, past readings are always subject to revision, and a strong ADP survey hardly means an online NFP report, as the correlation between the two reports has been sporadic, to say the least.
Still, the relevance of the ADP survey is reinforced by the fact that the US releases multiple employment-related data in the days leading up to the NFP release. All of them combined help market participants find clues about what the Federal Reserve (Fed) may do next with monetary policy.
Fed Chairman Jerome Powell has explained on multiple occasions that a tense labor market weighs against lowering interest rates, as it risks raising inflationary pressures through wage increases. American policymakers are less concerned about the jobs situation lately, although they seem comfortable where they are.
Powell participated in a debate Friday at the Macroeconomics and Monetary Policy Conference in San Francisco. He said the economy is strong and policymakers are in no rush to cut rates. He repeated that they want to be more confident before doing so. According to CME's FedWatch tool, the odds of a rate cut in June are around 56%, following Powell's comments and data indicating that core personal consumption expenditure (PCE) inflation remained stable at 2.8% annual in February.
The ADP survey also provides salary data. In February, the report showed that “wage gains for job changers accelerated for the first time in more than a year, rising to 7.6% from 7.2%.”
Nela Richardson, Chief Economist at ADP, said: “Employment growth remains strong. Wage increases are trending downward, but remain above inflation. In short, the labor market is dynamic but does not tip the balance in terms of to a Fed rate decision this year.”
With this in mind, another strong report will likely further undermine the chances of a rate cut in June and put financial markets into risk-off mode.
When will the ADP survey on job creation be released and how could it affect EUR/USD?
The ADP survey of job creation will be released Wednesday and is expected to report that the private sector added 148,000 new jobs in March. If the headline reading comes in well above the estimate, it could be seen as a stubbornly strong labor market. Combined with rising wages, the news will likely boost demand for the dollar. The opposite scenario, weak job creation along with declining wages, should push the dollar into negative territory amid better sentiment.
From a technical point of view, Valeria Bednarik, chief analyst at FXStreet, notes: “The Dollar Index (DXY) is flirting with 105.00 ahead of the announcement, after reaching 105.10 on Tuesday, a new 2024 high. The momentum Bullishness, however, is absent on the daily chart, even though the overall picture favors a bullish continuation. The DXY develops above its moving averages, although the 100 and 200 simple moving averages (SMA) lack strength “Only the 20 SMA seems to show signs of life, advancing marginally and about to cross above the 100 SMA. Meanwhile, technical indicators remain at positive levels, although without clear directional strength.”
Bednarik adds: “Beyond the 105.20 zone, the DXY has little to deal with until 105.50. A daily close above the latter value should confirm the bullish arguments and pave the way for a test of the prices of 106.00-106.10. On the other hand, immediate support is at 104.70, followed by 104.25”.
Economic indicator
ADP job change in the United States
The ADP Employment Change is an indicator of private sector employment published by the largest US payroll processor, Automatic Data Processing Inc. It measures the change in the number of people employed in the US private sector. In general, an increase in the indicator has positive implications for consumer spending and stimulates economic growth. Therefore, a high reading is traditionally considered bullish for the US Dollar (USD), while a low reading is considered bearish.
More information.
Next post: 03/04/2024 12:15:00 GMT
Frequency: Monthly
Fountain: ADP Research Institute
Why it is important for operators
Traders often view employment figures from ADP, the largest U.S. payroll provider, as a harbinger of the Bureau of Labor Statistics' release of Nonfarm Payrolls (usually released two days later), because of the correlation between both. The overlap between both series is quite high, but in specific months, the discrepancy can be substantial. Another reason why currency traders follow this report is the same as with the NFP: strong and persistent growth in employment numbers increases inflationary pressures and, with it, the likelihood that the Fed will raise interest rates . Actual numbers that beat consensus tend to be bullish for the USD.
Employment FAQs
How do employment levels affect currencies?
Labor market conditions are a key element in assessing the health of an economy and, therefore, a key factor in the valuation of currencies. A high level of employment, or a low level of unemployment, has positive implications for consumer spending and therefore economic growth, boosting the value of the local currency. On the other hand, a very tight labor market – a situation in which there is a shortage of workers to fill vacant positions – can also have implications on inflation levels and, therefore, on monetary policy, since a supply of labor Low labor and high demand lead to higher wages.
Why is wage growth important?
The pace at which wages grow in an economy is key for policymakers. High wage growth means that households have more money to spend, which often translates into higher prices for consumer goods. Unlike more volatile sources of inflation, such as energy prices, wage growth is considered a key component of underlying and persistent inflation, as wage increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding their monetary policy.
How much do central banks care about jobs?
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks have mandates explicitly related to the labor market beyond controlling inflation levels. The United States Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the only mandate of the European Central Bank (ECB) is to keep inflation under control. Even so, and despite the mandates they have, labor market conditions are an important factor for the authorities given their importance as an indicator of the health of the economy and their direct relationship with inflation.
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.
