US Dollar Weakens as Markets Eye ADP and ISM Reports
By James Hyerczyk
Originally published on FXEmpire.com
The US Dollar faced considerable pressure heading into early July, influenced by a mix of weaker economic indicators and growing anticipation over upcoming employment data. Major currency pairs like EUR/USD and GBP/USD saw renewed strength, as traders positioned themselves ahead of the release of the ADP Non-Farm Employment report and the ISM Services PMI. Market participants are carefully analyzing these reports to gauge the next potential move from the Federal Reserve regarding interest rates.
This article delves into the recent price action, economic influences, and forward-looking expectations for the US Dollar, particularly in the context of its performance against major global currencies like the euro and pound sterling.
US Dollar Broadly Weakens
The US Dollar has been sliding against major currencies, reversing recent gains made on the back of relatively resilient US economic data. As traders readied themselves for new labor market and services sector reports, the decline in the dollar suggested increased uncertainty in the short term. Several factors drove this weakness:
– Disappointing economic indicators, particularly related to manufacturing and job openings
– Rising anticipation that the Federal Reserve may begin easing interest rates sooner than expected
– Technical chart signals that marked a potential reversal in USD strength
Insight from the Job Openings and Labor Turnover Survey (JOLTS) painted an economic picture that deterred hawkish sentiment. Job openings fell to their lowest level in more than three years, sparking a reassessment about the robustness of the labor market and, by extension, the Fed’s commitment to keeping rates high.
JPY Strength on Safe-Haven Appeal
While the dollar showed weakness across numerous pairs, it also slipped against the Japanese yen. The USD/JPY pair traded sharply lower, highlighting risk-aversion among investors as uncertainty rose over upcoming US data releases and the broader global economic picture.
Key drivers supporting the Japanese yen included:
– Safe-haven demand amid doubts over the global economic outlook
– Low job openings in the US pointing to potential economic slowdown
– Reduced expectations of another Federal Reserve rate hike
This reversal in USD/JPY signals investors may be moving from riskier assets toward those perceived as safer in times of potential volatility or softer economic growth ahead.
Focus Shifts to High-Impact Economic Data
Markets are looking ahead to several key pieces of information that could provide clarity on the Federal Reserve’s next move. These include:
– ADP Non-Farm Employment Change
– ISM Services Purchasing Managers Index (PMI)
– Upcoming US Non-Farm Payrolls (NFP) report
The ADP report, which often serves as a precursor to the more comprehensive NFP report, will help assess the state of private sector employment. Meanwhile, the ISM Services PMI will reveal how the service sector — which accounts for a significant portion of US economic activity — is performing.
Expectations for the ADP Report and Services PMI
Analysts and traders expect the ADP Non-Farm Employment report to show moderate job growth, but deviations from forecasts could lead to higher volatility in currency markets. If job growth beats expectations, it might strengthen the dollar momentarily as market participants renew expectations of a “higher-for-longer” rate policy. Conversely, any miss would reinforce recent sentiments that looser monetary conditions are necessary.
With the ISM Manufacturing PMI already showing contraction, attention turns to ISM Services data. Service-sector resilience has been a key argument for those holding on to bullish US growth expectations. If the ISM Services report confirms slowing business activity, it could further bolster the case for the Fed to ease its policy stance in the coming months.
Federal Reserve Interest Rate Outlook
Federal Reserve policy expectations remain highly sensitive to incoming data. Following recent underwhelming economic performance, market consensus is increasingly leaning toward the possibility that the Fed may lower interest rates before the end of 2024. Traders are now closely watching how employment and inflation data unfold in the weeks ahead
Read more on EUR/USD trading.