US Dollar Remains Supported Despite Soft ADP Employment Report

USD weekly outlook TradersDNA

The US dollar was at more than two-week highs against world currencies Wednesday, as expectations for a US rate increase outweighed weaker than expected ADP employment data.

The dollar index, a trade-weighted average of the dollar against a basket of six world currencies, was little changed at 97.84. The index had reached a high of 98.22 in intraday trade, its highest in three months.

The dollar lost ground against the pound, as the GBP/USD advanced 0.5% to 1.5647. The greenback also eased off 11-year highs against the Canadian dollar, as the USD/CAD tumbled 0.6% to 1.3115.

Expectations for a Federal Reserve rate increase continued to fuel bets on the US dollar. On Tuesday Federal Reserve Bank of Atlanta President Dennis Lockhart said interest rates will probably increase in September. The centrist policymaker, who is also a voting member of the Federal Open Market Committee, told The Wall Street Journal on Tuesday it would take a “significant deterioration in the economic picture” for him to not move forward with a rate increase.

Having left interest rates at record lows last week, the Fed has just three more policy meetings scheduled this year. Analysts widely expect at least one rate adjustment before the end of the year.

In economic data, payrolls processor ADP said US employers added 185,000 jobs last month, following an upwardly revised 229,000 in June. A median estimate of economists forecast a July increase of 215,000.

“Job growth is strong, but it has moderated since the beginning of the year,” said Moody’s chief economist Mark Zandi in a press release. “Layoffs in the energy industry and weaker job gains in manufacturing are behind the slowdown. Nonetheless, even at this slower pace of growth, the labor market is fast approaching full employment.”

The July increase was the smallest since April when private employers added 179,000 payrolls. The vast majority of the jobs created in July – more than 96% – were concentrated in the services sector. Professional and business services added 42,000 jobs last month, while employment in trade, transportation and utilities increased by 25,000. Among goods-producers, the construction sector added 15,000 workers last month, while manufacturing employment increased by only 2,000.

The US manufacturing sector grew at a slower rate in July, as a surging dollar weighed on exports. US manufacturing PMI slipped to 52.7 in July from 53.5 in June, the Institute for Supply Management reported Monday.