ADP Smashes Expectations, Delivering Dollar Rebound

Market Trends - 05/04/2017

The downward pressure on the US dollar created by the Federal Reserve's recent move to raise interest rates by a quarter point seems to be finally easing, as evidenced by the most recent rally in the greenback following the ADP job creation report.

According to the private payroll processor, the US economy added 263,000 jobs in March, surging past the consensus estimate of economists for 187,000 new positions.  While there was a minor disappointment in the prior month’s revision lower from 298,000 to 245,000, the latest print reflects the strongest labor data reported since December of 2014.

Adding to the broad sense of optimism was the 30,000 manufacturing positions gained during the period as goods producers increased hiring by 82,000 individuals.

Furthermore, construction employment continued to gain, with the sector reporting 49,000 jobs created.  The momentum behind this blistering employment print came predominantly from small and medium-sized business with less than 500 employees.

After one of the strongest quarters for employment in years, markets are gradually cueing up for another upbeat non-farm payroll figure from the Bureau of Labor Statistics on Friday.

Evidence of this comes from the US dollar, which has managed to extend its most recent winning streak against major peers, following a significant period of losses after the last FOMC move to tighten rates.

Although normally the response to rising rates is an appreciation in the local currency, the dollar selloff reflects a sense of dovishness on the part of policymakers following expectations from market participants that the pace of tightened would be accelerated.

The latest ADP figures give credence to the idea that the US economy is not only stomaching the rate hikes, but still managing to flourish despite rising borrowing costs.

As a result, gold prices remain under pressure, falling back below the $1250 level after reaching the highest point in a month during Tuesday trade

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