Market Data 
- The ADP Employment Change, and the US labour market, take centre stage this week.
- The US private sector is seen adding 140K new jobs in February.
- The US Dollar Index continues to trade in the lower end of the range.
The US labor market is set to take center stage this week as fresh concerns mount that the economy may be losing its momentum — a sentiment echoed by recent slower growth and worrisome fundamental data.
In the spotlight, the ADP Research Institute is poised to release its February Employment Change report on Wednesday, offering a snapshot of private-sector job creation.
Typically coming out two days before the official Nonfarm Payrolls (NFP) report, the ADP survey is often seen as an early indicator of trends expected in the Bureau of Labor Statistics (BLS) jobs report — even if the two don’t always tell the same story.
The economic equation: Job growth and Fed policy in focus
Employment is critical as it forms one of the two legs of the Federal Reserve’s (Fed) dual mandate. The US central bank is tasked with maintaining price stability while pursuing maximum employment. As inflationary pressures remain stubborn, the focus appears to have temporarily shifted to the performance of the US labour market following the Fed’s hawkish stance at its January 28–29 meeting.
In the meantime, investors continue to closely monitor the White House’s trade policies and their consequences, particularly after US tariffs on Canadian and Mexican imports took effect on March 4. Fears that these levies could fan the flames of a resurgence in inflationary pressure have driven both the Fed’s prudent approach and the cautious remarks from many of its policymakers.
So far, and in light of the recent set of weaker-than-expected results that have challenged the notion of US “exceptionalism”, market participants now expect the Fed to reduce interest rates by 50 basis points this year.
Amid the ongoing tariff turmoil, the apparent slowing momentum of the US economy, and persistent consumer price pressures, the ADP report — and especially Friday’s Nonfarm Payrolls report — has gained renewed relevance and could help shape the Fed’s next move.
When will the ADP Report be released, and how could it affect the US Dollar Index?
The ADP Employment Change report for February is set to drop on Wednesday at 13:15 GMT with forecasts pointing to an addition of 140K new jobs following January’s gain of 183K. In anticipation, the US Dollar Index (DXY) remains securely on the defensive, putting the key support at 106.00 to the test amid rising jitters over the US economy.
If the ADP report delivers robust numbers, it could momentarily cool the mounting concerns over the US economic slowdown. However, if the results fall short of expectations, it might reinforce worries that the economy is losing momentum—potentially prompting the Fed to reconsider an earlier restart of its easing cycle.
According to Pablo Piovano, Senior Analyst at FXStreet, “If the recovery gains traction, the DXY could revisit the weekly peak of 107.66 (February 28), a region that appears reinforced by the proximity of the transitory 55-day SMA around 107.90, ahead of the February high of 109.88 set on February 3, and the YTD peak of 110.17 from January 13. Surpassing that level might pave the way toward the next resistance at the 2022 high of 114.77 recorded on September 28.
“On the flip side, if sellers manage to seize control, the index might first find support at the 2025 bottom of 105.89 reached on March 4, prior to the December 2024 bottom of 105.42, and eventually at the critical 200-day SMA in the 105.00 zone. Staying above that key threshold is essential for sustaining bullish momentum,” Piovano concludes.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
