US ADP report set to show modest gains in US private-sector employment

The ADP Employment Change report is expected to show a modest improvement in the number of private jobs created in September.
The United States will publish the Nonfarm Payrolls report on Friday.
The US Dollar consolidates post-Fed losses and is at risk of falling further.

The Automatic Data Processing (ADP) Research Institute will release its monthly report on private-sector job creation for September on Wednesday. The so-called ADP Employment Change report is expected to show that the United States (US) added 120,000 new positions in September after creating 99,000 jobs in August.

The data is usually released two days ahead of the official Nonfarm Payrolls (NFP) report for the same month and is usually seen as an advanced indicator of the Bureau of Labor Statistics (BLS) jobs report, despite a doubtful correlation between both indicators.

ADP Jobs Report: Employment and the Federal Reserve

US employment data has been in the eye of the storm for over a year amid its impact on the latest Federal Reserve (Fed) monetary policy decisions. The Fed’s dual mandate of maximum employment and price stability has been under siege in the pandemic aftermath, and the central bank opted to tighten monetary policy to put things back in balance.

The main issue was inflation, as price pressures skyrocketed throughout 2022. The Fed pushed rates to record highs and maintained them there amid the risks of a tight labor market further fuelling price pressures. Nevertheless, indicators have come into a better balance in the last few months, and the Fed finally decided to trim interest rates. US policymakers cut the benchmark rate by 50 basis points (bps) when they met in September while anticipating additional cuts on the way.

That said, market participants are now wondering whether the central bank will deliver a mode discretionary 25 bps cut when it meets in November or proceed again with a 50 bps trim. Ahead of data releases, the odds for a 25 bps stand at 66%, according to the CME FedWatch Tool.

In the meantime, Fed officials have shifted their focus from inflation to employment. With price pressures receding, maintaining a “healthy” labor market is now their main goal.

With that in mind, a stronger-than-anticipated ADP report will likely weigh down the odds for another aggressive interest rate cut in November, giving near-term support to the US Dollar. On the contrary, a disappointing reading may force speculative interest to increase bets for another 50 bps interest rate cut, resulting in a weaker USD. Finally, it is worth remembering the report could have a short-lived impact, as market players will most likely wait until the NFP release scheduled for Friday.

When will the ADP Report be released, and how could it affect the USD Index?

ADP will release the US Employment Change report on Wednesday and it is expected to show that the private sector added 120,000 new positions in September.

Ahead of the release, the US Dollar Index (DXY) consolidates below the 101.00 mark after posting a fresh 2024 low of 100.16 by the end of September.

From a technical perspective, Valeria Bednarik, Chief Analyst at FXStreet, says: “The DXY has remained under pressure since the Fed’s monetary policy announcement mid-September, and technical readings in the daily chart suggest its bullish potential remains well-limited. A bearish 20 Simple Moving Average (SMA) provides near-term resistance around the aforementioned threshold, while a bearish 100 SMA gains downward momentum well above the shorter one, and after crossing below a flat 200 SMA.”

Bednarik adds: “Technical indicators, in the meantime, remain within negative levels, lacking directional momentum. Overall, the risk skews to the downside. Resistance beyond the 101.00 threshold comes at 101.47, followed by the daily low at 102.17 posted on August 5. Supports, on the other hand, can be found at 100.41 and the year-to-date low of 100.16. A break below the latter could anticipate a steeper decline towards the 99.00 figure.”

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

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