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- The ADP survey is expected to show the US private sector added 150K new jobs in February.
- Upbeat jobs data in January caused investors to price in a delay in the Fed policy pivot.
- Wage inflation figures will be watched closely by market participants.
The Automatic Data Processing (ADP) Research Institute will release the private employment data for February on Wednesday. The survey is an independent estimate of private-sector employment and pay, usually released two days ahead of the Bureau of Labor Statistics’ (BLS) official jobs report, which features Nonfarm Payrolls (NFP) data.
The correlation between the ADP Employment Change and NFP numbers is not always the most reliable and its results tend to diverge from the official job creation numbers provided by the BLS. Still, market participants pay attention to the ADP figures as part of the multiple employment-related releases that take place in the days preceding the NFP publication.
In January, the ADP reported that employment in the private sector rose by 107,000, missing the market expectation of 145,000, and annual pay was up 5.2% year-over-year. In the same period, NFP increased by 353,000 to surpass analysts’ estimate of 180,000 by a wide margin.
After leaving the policy settings unchanged in January, Federal Reserve (Fed) Chairman Jerome Powell said in the post-meeting press conference that it was not likely for them to start reducing the policy rate as early as March. “If we saw an unexpected weakening in the labor market, that would make us cut rates sooner,” Powell added. Impressive labor market data for January reaffirmed a delay in the Fed’s policy pivot and helped the US Dollar stay resilient against its rivals in early February.
When will the ADP Jobs Survey will be released and how could it affect EUR/USD?
The ADP Research Institute is expected to report on Wednesday that the private sector added 150,000 new positions in February.
In case the data comes in below 100,000, this could be seen as a sign of a weakening labor market and make it difficult for the USD to find demand. On the other hand, a print between 150,000 and 200,000 could provide a boost to the currency with the immediate reaction. If the data arrives near the market consensus, wage inflation figures could drive the USD’s valuation. An increase of 5.5% or higher in annual pay could be seen as a USD-positive print.
Ahead of Fed Chairman Powell’s testimony and Friday’s jobs report, however, investors could refrain from taking large positions based only on the ADP data. Hence, the market reaction could remain short-lived.
Eren Sengezer, European Session Lead Analyst, shares a brief technical outlook for EUR/USD:
“The 100-day and the 200-day Simple Moving Averages (SMA) form a pivot level for the pair at 1.0830. Technical buyers could remain interested as long as this level holds as support. On the upside, 1.0950 (Fibonacci 23.6% retracement of the October-December uptrend) could be seen as the next resistance ahead of 1.1000 (psychological level, static level). If the pair returns below 1.0830 and starts using this level as resistance, 1.0800 (Fibonacci 50% retracement) could be seen as interim support before 1.0700 (Fibonacci 61.8% retracement).
Economic Indicator
United States 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.
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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.
Fed FAQs
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.
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.
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.
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.
