US private sector employment increased by 122,000 in December, with annual pay rising 4.6% year-over-year, according to a report from Automatic Data Processing (ADP) released on Wednesday. This growth followed a 146,000 increase in November but fell short of the market’s 140,000 forecast.
Nela Richardson, ADP’s chief economist, commented, “The labor market slowed to a more modest growth pace in December, with both hiring and pay gains easing.” She highlighted that the healthcare sector was a standout, generating more jobs than any other sector in the second half of the year.
Market Reaction
Following the report, the US Dollar Index pulled back slightly from session highs but was still up 0.48% on the day, reaching 109.20.
Market Preview: US ADP Employment Change Data and Its Limited Impact
- The ADP Employment Change is unlikely to significantly impact financial markets.
- The US private sector is expected to have added 140,000 jobs in December, down from November’s 146,000.
- The US Dollar Index has corrected its extreme overbought conditions but retains a bullish outlook.
As financial markets gradually return from the winter holidays, the macroeconomic calendar is filling up. Market focus has recently been on the US and President-elect Donald Trump’s proposed tariffs, with sentiment swinging between optimism and uncertainty about the potential economic impact of the new US administration.
In the midst of these uncertainties, US employment takes center stage. The ADP Research Institute will release its December Employment Change report on Wednesday, which estimates the number of new jobs created by the private sector. Although the ADP report is typically released two days before the official Nonfarm Payrolls (NFP) report, the correlation between the two has been inconsistent over time.
Employment and the Fed’s Policy Outlook
Employment data plays a key role in shaping Federal Reserve policy, as it is a crucial part of the Fed’s dual mandate alongside price stability. While inflationary pressures eased in 2024, attention shifted toward employment growth as a potential inflationary risk.
However, after the 2024 presidential election, attention returned to inflation concerns. With Donald Trump returning to office and the Republican party maintaining control of Congress, fears of inflationary pressures have influenced the Fed’s cautious stance on rate cuts. The Fed reduced interest rates by a total of 100 basis points in 2024, with cuts in September, November, and December.
In the December Federal Open Market Committee (FOMC) meeting, policymakers signaled that the pace of rate cuts would slow in 2025, with only two cuts anticipated for the year. As a result, it seems unlikely that either the ADP report or the upcoming NFP report will alter expectations of modest rate cuts. According to the CME FedWatch Tool, the chances of a rate cut do not exceed those for a rate hold until June.
ADP Report Release and Potential USD Impact
The ADP Employment Change report will be released on Wednesday at 13:15 GMT, with the expectation of 140K new jobs added in December, following November’s 146K. Given the Federal Reserve’s focus on the broader economic outlook, the ADP report is unlikely to have a major impact on the US Dollar Index (DXY), especially with the FOMC’s December minutes set for release later in the day. Traders will likely focus on the minutes for insights into upcoming monetary policy decisions.
If the ADP report exceeds expectations, it could signal a stronger labor market and reinforce the Fed’s hawkish stance, likely boosting the DXY. Conversely, a weaker report may initially prompt a drop in the DXY, but any decline would likely be short-lived, as the market remains focused on the Fed’s broader policy trajectory.
Technical Analysis: US Dollar Index Outlook
Valeria Bednarik, Chief Analyst at FXStreet, notes that the DXY has corrected from its overbought conditions, with the downward movement losing momentum. On the daily chart, the bullish 20-day Simple Moving Average (SMA) offers dynamic support around 107.90, attracting buyers for a second consecutive day.
Immediate support is seen at 107.74 (December 30 intraday low), and further declines may bring the DXY towards 107.18 (December 13 high). A break below 107.00 is unlikely with the ADP report. On the upside, initial resistance is at 108.55 (December 20 intraday high), with potential gains exposing the multi-year high of 109.56.
