Dollar rises as markets shrug off ADP report

NEW YORK - The dollar gained on Wednesday as investors took profits from recent gains in other currencies and shrugged off a private sector employment report which showed a slower pace of US job creation in July than forecast.

By (Reruters)

Published: Wed 2 Aug 2006, 10:30 PM

Last updated: Sat 4 Apr 2015, 2:03 PM

The dollar went into the ADP Employer Services report broadly stronger, as traders bought back the currency at cheaper levels following its decline after recent data showing a sharp slowdown in US economic growth.

“The dollar has been able to reclaim some of yesterday’s losses in overnight trade, but the extent of the rebound is modest and one expects that once the euro has pulled back to the $1.2780 area there will be extremely strong buying interest,” said Michael Jansen, currency strategist, at National Australia Bank in New York.

The euro was 0.2 percent lower at $1.2798 EUR. Earlier, it hit a one-month high of around $1.2835. The dollar rose 0.2 percent against the yen to 114.77 yen JPY.

Against the Swiss franc, the dollar was up 0.2 percent at 1.2287 francs CHF. Sterling was flat at $1.8759 GBP.

Lara Rhame, senior currency strategist at Credit Suisse said the dollar dipped initially after the ADP report before recovering, adding, “I’m honestly very surprised that the market is moving on this number.” She noted that the market does not pay nearly as much attention to the ADP as it does the Labor Department’s payrolls data.

The ADP Employer Services report is one of the last pieces of data that markets look at as a barometer of what to expect for Friday’s all-important US non-farm payrolls data.

According to the ADP report, US private sector employers created an estimated 99,000 jobs in July, down from 368,000 in the previous month. A median forecast in a Reuters poll of economists was for 155,000.

Having badly missed predicting US payrolls in two of its first three months of release, the ADP has lost some of its ability to guide market expectations for Friday’s full employment report, analysts said.

According to the latest Reuters poll of economists, the US Labor Department on Friday is expected to show that 142,000 non-farm payroll jobs were created in July, up from 121,000 in June.

Federal fund futures on Wednesday were pricing in a 35 percent the Fed will hike rates on Aug. 8 after the ADP report, unchanged from before the ADP report. Higher interest rates generally enhance the allure of short-term dollar deposits.

By contrast, a rate increase by the European Central Bank to 3.00 percent on Thursday is seen as a near-certainty, with most analysts forecasting another hike by year-end.

The market’s attention remains on Friday’s labor market data, with particular focus not only on the payrolls number, but also on the unemployment rate to judge capacity levels.

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