Oct 3 2024: The U.S. dollar surged to a three-week high against the euro on Wednesday following a better-than-expected ADP national employment report, which revealed that U.S. private payrolls increased more than anticipated in September. This data comes ahead of Friday’s closely watched government jobs report.
In September, private payrolls rose by 143,000 jobs, beating economists’ forecast of 120,000 and following a revised 103,000 increase in August. According to Brad Bechtel, global head of FX at Jefferies, the robust ADP figures suggest a solid nonfarm payroll (NFP) report on Friday, where economists expect 140,000 new jobs and a steady unemployment rate of 4.2%.
This positive economic data, along with hawkish comments from Federal Reserve Chair Jerome Powell earlier in the week, has strengthened the dollar and reduced market expectations of another 50 basis point rate cut in November. Traders now see a 35% chance of the cut, down from 57% a week earlier, according to the CME Group’s FedWatch Tool.
Richmond Fed President Thomas Barkin acknowledged that last month’s rate cut was a reflection of the Fed’s policy rate being misaligned with the economy’s strength but emphasized that inflation control efforts are far from over.
Meanwhile, the dollar index rose by 0.42% to 101.68, marking its highest point since September 11. The euro fell 0.27% to $1.1037, as expectations grow that the European Central Bank may cut interest rates later this month amid easing inflation.
The Japanese yen also dropped, with the dollar climbing 1.94% to 146.34 yen. Japan’s Prime Minister Shigeru Ishiba suggested the country isn’t positioned for an additional rate hike, despite concerns over inflation.
Safe-haven demand for the dollar was further supported by heightened geopolitical tensions in the Middle East. Following an Iranian missile attack on Israel, both nations issued warnings of further retaliation, raising fears of a broader conflict that could impact global markets.
