USD Higher Despite Weak ADP Employment Report

CURRENCY FUTURES

The U.S. dollar Index is sharply higher today despite the weaker than expected ADP employment change report. It is a sign of strength for any market to advance when bearish news is announced.

The long term fundamentals and technicals remain supportive to the U.S. dollar, and higher prices are likely.

The euro zone economy ended 2024 on a weak note. The European Commission’s key sentiment indicator fell more than expected in December with German industrial orders and German retail sales unexpectedly declining.

The long term fundamentals and technicals remain bearish for the euro currency and the British pound, and lower prices are likely.

INTEREST RATE MARKET FUTURES

In the overnight trade the March U.S. 30-year Treasury bond futures declined to the lowest level since November 3, 2023. There was only a limited bounce when the bullish ADP report was released.

Earlier today Federal Reserve Governor Christopher Waller said he will support further interest rate cuts in 2025, although the pace of rate cuts depends on data.

The U.S. Treasury will auction 30-year bonds today.

There is a 95% probability that the Federal Open Market Committee will keep its fed funds rate unchanged at 4.25% – 4.50% at its January 29, 2025 policy meeting, and there is a 5% chance of a 25 basis point reduction.

It also appears that the FOMC will keep policies on hold at the March 19, 2025 meeting as well.

The U.S. economy is likely to perform well, which may cause the FOMC to be slower to add accommodation in 2025 than the consensus view.

Futures at the long end of the yield curve are likely to trend lower, while futures at the front end of the yield curve are likely to trade sideways.

STOCK INDEX FUTURES

Stock index futures are mixed.

The ADP employment report showed an increase of 122,000 in December when up 134,000 were expected.

Jobless claims in the week ended January 4 were 201,000 when 216,000 were anticipated.

The 9:00 central time November wholesale inventories report is forecast to show a 0.2% decline.

The Federal Reserve will release the minutes from its December 18 policy meeting at 1:00.

Investors are closely watching the Federal Reserve’s 2025 policy outlook, focusing on the likelihood of fewer interest rate cuts. This bearish influence is likely to be offset by prospects of the U.S. economy growing faster than the consensus view.

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