ADP payroll data shows US labor market conditions missed consensus expectations in December 2021 and January 2022.
The US dollar index (DXY) fell to its lowest in a week in New York trading yesterday. The ADP Non-farm Employment Change report showed that US labor market data strayed too far from consensus, while expectations of higher interest rates in a number of other countries strengthened. At the time of writing (3/February), DXY was still under pressure at around 96.00.
Automatic Data Processing Inc. reports that US private payrolls fell by 301k in January 2022, whereas consensus expects an increase of 207k. ADP payroll data for December 2021 was also revised down from 807k to 776k, allegedly due to the spike in COVID-19 cases in Uncle Sam's country during that period.
These data are unlikely to affect the US Federal Reserve's plan to raise interest rates in March. However, the data dispelled speculations surrounding the prospect of a 50 basis point rate hike that had previously spread. Market vigilance is on the rise ahead of Friday's release of US Non-farm Payroll data, as the two often display similar dynamics.
The implications of the ADP payroll data are in line with the recent comments of several Fed officials who dismissed the rate hikes on a too large scale. The Fed may still raise interest rates in March, but the amount will not reach 50 basis points. This conclusion makes a number of analysts remain optimistic about the US dollar amid its current decline.
"The market is poised for a drop in January payrolls due to Omicron, and in recent days a number of Fed officials have been signaling comfort with the direction of the economy," said Karl Schamotta, chief market strategist at Cambridge Global Payments, "Until financial conditions tighten significantly, The The Fed will maintain its hawkish bias and momentum should support the dollar. (The dollar rate) will peak, but we're not there yet."
In contrast to the depreciation of the USD, the euro yesterday was actually jumped by the release of Eurozone inflation data which again set a new record high. More and more traders expect the European central bank (ECB) to deliver a hawkish surprise at its policy meeting today.
GBP/USD had reached its highest level in a week at around 1.3587 yesterday, although its movement loosened in today's Asian session. Money markets have fully priced in the prospect of a 25 basis point BoE rate hike at the meeting later this afternoon.
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