US Dollar Falls Against Euro as ADP Employment Data Misses Estimates

The US dollar fell against the euro on Wednesday, as uncertainty between traders about the labor market increased following disappointing employment data today. The greenback also declined against a basket of major currencies amid lower expectations for the official job report on Friday.

The ADP Research Institute, which releases a monthly estimate for job gains ahead of government data, said in a report published earlier today that the US private sector hired 178,000 employees in July. The number, which was a drop from 191,000 in June, disappointed forecasts of 185,000 new jobs and lowered expectations for the official number that is due to be released on Friday.

The report reflected tightening conditions in the labor market as strong job gains in recent months made it difficult for private businesses to find and recruit qualified employees. Official data is expected to show on Friday that the unemployment rate dropped to 4.3% in July, which would be the lowest rate since April 2001.

Gains in July were widespread across sectors and company sizes, according to the ADP report that is based on data from 411,000 US businesses. The private sector hired 65,000 employees for business services and 43,000 workers for education and healthcare positions. Meanwhile, manufacturers were the only category that reduced their payrolls, shedding 4,000 workers in July.

Medium businesses had the biggest contribution to job gains last month, creating 83,000 new jobs, followed by small businesses, which hired 50,000 employees. The official employment data on Friday is expected to show a total gain that matches today’s report.

Employment numbers often influence interest rate decisions from the Federal Open Market Committee. Policymakers and officials from the Federal Reserve signaled that a third rate increase could be coming this year. The CME Group FedWatch tool, which tracks future prices of federal funds to calculate investors’ bets on future policy, shows a 42.5% probability of an interest rate hike in December.

Presidents of San Francisco and Cleveland Federal Reserve Banks John Williams and Loretta Mester are due to speak today. Both presidents are members of the Federal Open Market Committee, which raised traders’ anticipation for hints of upcoming changes to the US monetary policy.

EUR/USD rose to 1.1859 as of 15:35 GMT on Wednesday after touching 1.1865 at 08:30 GMT, the pair’s highest level since January 2015. EUR/USD began trading today at 1.1810.

The Dollar Index, which tracks the performance of the US currency against a basket of other major currencies, dropped to 92.77 as of 15:27 GMT today from 93.04 yesterday.

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