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US ADP Employment Report expected to show 145K new jobs added ahead of crucial NFP

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US ADP Employment Report expected to show 145K new jobs added ahead of crucial NFP

  • ADP Employment Change is forecast to arrive at 145,000 in August.
  • Labor market conditions could influence the Fed’s policy outlook.
  • The US Dollar stays resilient against its rivals after posting large 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 positions in August following the 122,000 increase recorded in July.

The survey is usually released a couple of days before the official Nonfarm Payrolls (NFP) data (not this month, as it will be released the prior day), and despite random divergences in the outcome, market participants tend to read it as an advanced indicator of the Bureau of Labor Statistics’ (BLS) jobs report. 

ADP Jobs Report: Employment and the Federal Reserve

After leaving monetary policy settings unchanged in July, the Federal Reserve (Fed) seemingly shifted its focus toward the labor market, with inflation readings giving enough confidence to policymakers about further progress toward the 2% central bank’s target. In its policy statement, the Fed noted that it is attentive to risks on both sides of its dual mandate, a change from the June statement, in which it said it was ‘highly attentive’ to inflation risks.

While speaking at the Jackson Hole Economic Symposium on August 23, Fed Chairman Jerome Powell acknowledged that the time has come for the monetary policy to adjust. “We will do everything we can to support a strong labor market as we make further progress toward price stability,” Powell said. 

According to the CME FedWatch Tool, markets are currently pricing in a nearly 30% probability of the Fed lowering the policy rate by 50 basis points (bps) at the upcoming policy meeting. In case the ADP report suggests that employment in the private sector increased at a stronger pace than forecast in August, market participants could refrain from pricing in a large rate reduction in September. On the other hand, a disappointing ADP print, close to 100,000, could feed into growing fears over cooling conditions in the labor market and allow markets to remain hopeful about a 50 bps rate cut, at least until the BLS publishes the jobs figures for August on Friday.

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

ADP will release the Employment Change report on Thursday, September 5. Investors expect an increase of 145,000 in private sector payrolls.

Following the 208,000 increase recorded in March, employment growth in the private sector has been growing at a softening pace, hitting 122,000 in July. In case there is a noticeable rebound in this data, with a reading close to 200,000, the US Dollar (USD) could outperform its major rivals with the immediate reaction. Another disappointing print, however, could have the opposite effect on the USD’s valuation.

Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief technical outlook for the USD Index (DXY):

“The DXY lost over 2% in August and touched its weakest level since July 2023 near 100.50 on August 27. Although the index managed to stage a rebound from this level, the near-term technical outlook is yet to provide a convincing sign of a reversal of the bearish trend.”

“On the upside, the 20-day Simple Moving Average (SMA) aligns as immediate resistance at 102.00. In case the DXY rises above this level and confirms it as support, technical buyers could show interest. In this scenario, 102.65 (Fibonacci 38.2% retracement of the latest uptrend) could be seen as the next bullish target before 103.30 (Fibonacci 50% retracement). On the flip side, 101.00 (static level) aligns as the first support before 100.50 (end-point of the downtrend) and 100.00 (psychological level).”

US Dollar FAQs

The US 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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

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 stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the 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 in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker 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 from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

 

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