US Dollar Index (DXY) drops below 98.00 on hopes of a US-Iran peace deal

The US Dollar Index drops more than 0.7% on Wednesday amid hopes of a US-Iran deal.
Axios reports that Washington and Tehran are close to an agreement that sets the framework for nuclear talks.
ADP Employment Change figures later on Wednesday will set the stakes for Friday's NFP report.

Guillermo Alcala FXStreet

The US Dollar (USD) depreciates against its main peers on Wednesday amid hopes that the US and Iran are close to a deal to end the war. The USD Index (DXY), which measures the US Dollar against a basket of currencies, drops more than 0.7% on the day, approaching pre-war levels at 97.50.

A report by Axios, citing two US officials and other sources briefed on the issue, affirmed on Wednesday that the US and Iranian representatives are getting closer to a one-page memorandum of understanding to end the conflict, which defines the framework for more detailed nuclear negotiations at a later time.

This news comes after US President Donald Trump put the Operation Freedom to escort vessels through the Strait of Hormuz in pause, and US Secretary of State Marco Rubio affirmed that the US had achieved all the objectives of the war, signalling the end of the offensive stage.

Apart from that, the USD/JPY pair dropped sharply during Wednesday’s Asian session, allegedly due to an intervention by the Japanese Ministry of Finance (MOF). Although the pair has managed to regain some of the lost ground, this Japanese Yen (JPY) strength has added negative pressure on the DXY.

Later on Wednesday, the US ADP Employment Change Report is expected to show that private employment payrolls increased to 99K in April, from 62K in March. These figures would set a positive precedent that, if confirmed by Friday’s Nonfarm Payrolls report, would buy time for the Federal Reserve to better assess the economic impact of the war.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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