Weak U.S. ADP Jobs Data Raises Doubts about Rate Hike

The U.S. Dollar fell sharply after the latest ADP private sectors report showed that American companies added fewer jobs than expected in July. Traders blame the bearish energy complex and weak nonvehicle manufacturing industries for the weak showing. U.S. private companies hired 185,000 workers in July. Pre-report estimates had traders looking for a reading of 215,000.

The ADP news triggered a volatile reaction in the commodities and foreign currency markets because it raised concerns about the strength of the U.S. labor market, a key determinant as to whether the Fed will raise rates in September or December. On Friday, the U.S. Non-Farm Payrolls report is expected to show the economy added 224,000 new jobs in July.

Comments from Fed members the past two days also triggered volatile reactions. On Tuesday, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, suggested that Fed policy makers are prepared to raise the Fed funds rate in September. This triggered a rally by the U.S. Dollar that carried over into today’s early session.

Today, Federal Reserve Governor Jerome Powell said Wednesday that the labor market continues to look solid, but he’s undecided whether interest rates should be raised in September for the first time since 2006.

Gold, the Euro and British Pounds rallied on Wednesday due to the weaker dollar. The price action in the EUR/USD was most sensitive to the Fed member comments and the ADP report. GBP/USD investors were a little more cautious because of tomorrow’s Bank of England monetary policy meeting.

The BoE is expected to leave interest rates at historically low levels on Thursday. However, tomorrow’s vote is not expected to be unanimous. Instead of posting a 9 to 0 decision, this vote may show as many as two dissenters. This could be extremely bullish for the British Pound.

Crude oil futures firmed after this week’s U.S. Energy Information Administration’s supply/demand report showed a greater-than-expected drawdown of 4.4 million barrels. Traders had priced in a drawdown of 1.3 million.

In other news, the U.S. trade deficit rose 7.1% to a seasonally adjusted $43.8 billion in June. ISM Non-manufacturing PMI posted a better-than-expected 60.3 reading. The market had priced in a 56.3 reading.