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US Dollar Edges Higher Against Euro, Yen after ADP Beats; NFPs on Friday

US Dollar Edges Higher Against Euro, Yen after ADP Beats; NFPs on Friday

Christopher Vecchio, CFA, Omar Habib,

Talking Points:

- ADP Employment beat expectations, pushing markets to look forward to Friday’s data.

- Friday’s NFP report is the first of only two NFP’s before the next Fed meeting.

- EUR/USD falls as the greenback broadly strengthens on the news; USD/JPY rises with SPX500.

Ahead of Friday’s US Nonfarm Payrolls report for July, the ADP Employment came in at +179K, beating expectations of +170K. This, along with the fairly consistent Jobless Claims data over the past few weeks, eases some concerns about US economic data after the dismal Q2’16 GDP report last week, and likewise cushions expectations for a decent jobs report on Friday.

Labor data, barring May’s incredibly weak report, has been consistent and the major argument for the Fed to raise rates. With only two NFP reports before the Fed meets in September, the reports will have to be extraordinarily strong for the Fed to even consider raising rates. As of this morning, markets are only pricing in 18% chance for a rate hike at the September meeting; rates markets are barely pricing in December 2017 (60.4%) as the most likely period for the first rate rise.

Markets may be looking for +200K jobs growth from NFPs in order for the FOMC to raise rates, but Fed leaders do not agree that +200K is necessary for the labor market to continue to improve. According to Chair Yellen, San Francisco President John Williams, and the Atlanta Fed job growth calculator, the economy can sustain its current unemployment level with only about +100K jobs growth per month. Should NFPs come in around the ADP reading of +179K, it may be enough to start to push the needle back in favor of a rate hike at some point this year.

See the DailyFX economic calendar for Wednesday, August 3, 2016

Read more: August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

--- Written by Christopher Vecchio, Currency Strategist and Omar Habib, DailyFX Research

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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