Euro stays under pressure against US Dollar despite softer ADP data

EUR/USD trades lower as hawkish Fed expectations support the US Dollar.
Softer-than-expected ADP employment data and easing Treasury yields limit the Greenback’s advance.
The ECB is expected to deliver its second interest-rate increase of the year next week.

Vishal Chaturvedi FXStreet

EUR/USD consolidates its daily losses during American trading hours on Wednesday as the US Dollar (USD) holds firm, supported by hawkish Federal Reserve (Fed) expectations and escalating tensions in the Middle East. However, weaker-than-expected United States (US) labour market data and a modest pullback in US Treasury yields limit the Greenback’s advance. At the time of writing, the pair trades around 1.1580, down -0.11% on the day.

The ADP Employment Change showed that US private-sector payrolls increased by 38K in August, below market expectations of 47K and the upwardly revised July increase of 46K. The figures point to slowing hiring ahead of Friday’s Nonfarm Payrolls (NFP).

US Treasury yields ease across the curve on Wednesday but remain close to recent highs. The benchmark 10-year yield trades around 4.78% after briefly touching 4.81%, its highest level since October 2023. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 99.74 after reaching a two-week high near 99.87.

New York Fed President John Williams said on Wednesday that “yields are rising on a strong economy and strong outlook,” adding that they “don’t seem to be driven by the inflation outlook.” Williams noted that “there is a correlation between bond yields and the Middle East conflict.”

The broader outlook continues to favour the Greenback as traders increase bets that the Fed could raise interest rates as soon as September, particularly after Fed Chair Kevin Warsh adopted a tougher stance on inflation at the Jackson Hole Symposium last week. According to the CME FedWatch tool, the probability of a rate hike at the September 15-16 meeting stands at around 70%, up from 36% a week ago.

Escalating hostilities between the US and Iran are also supporting the Greenback while weighing on the Euro. The latest exchange of strikes has pushed Oil prices higher, fuelling inflation concerns and raising expectations that major central banks could keep monetary policy restrictive for longer.

Against this backdrop, the European Central Bank (ECB) is widely expected to raise its deposit rate by 25 basis points to 2.50% at its September 9-10 meeting, marking its second increase this year. Preliminary Eurozone inflation data for August showed that the Harmonized Index of Consumer Prices (HICP) accelerated to 3.3% YoY from 2.9% in July, strengthening the case for another rate hike. Looking ahead, the Eurozone Producer Price Index (PPI) is due on Thursday, followed by Retail Sales data on Friday.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Author

Vishal Chaturvedi

FXStreet

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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