Forex News
Standard Chartered economists Dan Pan and Steve Englander note that recent QCEW data validate softer NFP readings in late 2025, when government shutdown effects and DOGE layoffs weighed on employment. They highlight that the new birth-death model and a stabilising economic cycle have narrowed the NFP-QCEW gap, increasing confidence that 2025 and early 2026 labour market data show a firmer footing.
QCEW validation supports softer NFP
"The latest QCEW release confirmed the soft NFP readings in Q4-2025 driven by the government shutdown and DOGE-related deferred resignations."
"The QCEW data showed that employment grew by 1.3% from March to December 2025, slightly higher than NPF growth of 1.2%. This suggests that the overstatement issue in NFP estimates over the past couple of years may have become less of a problem since March 2025."
"Unlike the large downward benchmark revisions in 2023 and 2024, the upcoming preliminary benchmark revision in September may finally validate the NFP estimates in 2025."
"The new birth-death (B-D) model may have helped to better align NFP with the QCEW."
"We now have greater confidence in recent NFP readings given the narrow gap between QCEW and NFP at end-2025. With monthly NFP averaging 76k since the beginning of 2026, the labour market seems to have found a better footing in recent months."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Private sector employment in the United States grew by 122K in May, the Automatic Data Processing (ADP) reported on Wednesday. This print followed the 105K increase recorded in April and came in better than the market expectation for an increase of 117K.
Commenting on the report's findings, "Hiring was more broad-based in May than we've seen in the last few years. The labor market continues to show sustained momentum going into the summer hiring season," said Dr. Nela Richardson, Chief Economist, ADP.
What does the ADP employment data mean for the US Dollar?
The stronger-than-expected US private sector employment data helps the US Dollar (USD) preserve its strength against its major rivals in the early American session. At the time of press, the USD Index was up 0.16% on the day at 99.38.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.39% | 0.11% | 0.30% | 0.40% | 0.14% | 1.29% | 1.08% | |
| EUR | -0.39% | -0.29% | -0.09% | 0.01% | -0.25% | 0.92% | 0.72% | |
| GBP | -0.11% | 0.29% | 0.21% | 0.30% | 0.03% | 1.21% | 0.96% | |
| JPY | -0.30% | 0.09% | -0.21% | 0.12% | -0.13% | 1.00% | 0.76% | |
| CAD | -0.40% | -0.01% | -0.30% | -0.12% | -0.28% | 0.88% | 0.66% | |
| AUD | -0.14% | 0.25% | -0.03% | 0.13% | 0.28% | 1.18% | 0.95% | |
| NZD | -1.29% | -0.92% | -1.21% | -1.00% | -0.88% | -1.18% | -0.25% | |
| CHF | -1.08% | -0.72% | -0.96% | -0.76% | -0.66% | -0.95% | 0.25% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Upbeat labor market conditions suggest that the Federal Reserve (Fed) could remain focused on controlling inflation, with markets now pricing about 60% probability of the US central bank raising the interest rate at least once by end-2026.
Combined with the strong safe-haven demand due to the uncertainty surrounding the US-Iran conflict, hawkish Fed expectations continue support the US Dollar (USD) ahead of this Friday's critical official employment report, which is forecast to show an increase of 85K in Nonfarm Payrolls in May.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Rabobank strategist Molly Schwartz notes that Canada has entered a technical recession, with Gross Domestic Product (GDP) contracting for two consecutive quarters and missing expectations. Prime Minister Carney and Bank of Canada (BoC) officials downplay the downturn, while trade tensions and USMCA renegotiation loom. Schwartz stresses that sectoral tariffs and renewed terms with the United States (US) and Mexico will be critical for Canada’s economic outlook.
Technical recession and trade pressures
"While innovation in the US is so hot that the government is now pulling in the reins a bit, officials in Canada are turning a blind eye to sluggish growth."
"Last week it was announced that Canadian GDP shrunk by 0.1% in Q1 of 2026, marking the second consecutive quarter of contraction and signalling a technical recession."
"Bank of Canada Deputy Governor, Carolyn Rogers, has also brushed off the technical recession, saying that we need to “look past technical recession indicators” in favor of more leading economic indicators."
"But for some, the technical recession is a flashing red light, screaming that the current trade situation with the US is unsustainable and it’s time to sit down at the negotiating table."
"Prior to their sit down, LeBlanc sent a letter to both Greer, and Mexico’s economy secretary Ebrard, asking to see the USMCA renewed for another sixteen years, as the USMCA review is currently underway."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
UOB economist Lee Sue Ann notes that softer Australian Gross Domestic Product (GDP), easing inflation and a cooling labour market have reduced pressure on the Reserve Bank of Australia (RBA) to tighten further. She expects the cash rate to be held at 4.35% through at least 1Q27, with domestic demand remaining a drag even as external demand for commodities offers some support.
RBA seen on extended policy hold
"Last month, the RBA lifted the cash rate by 25 bps to 4.35%, with an 8–1 vote, fully unwinding last year’s easing and reinforcing its commitment to curbing persistent inflation."
"With softer GDP, easing inflation, and a cooling labour market, the urgency for further RBA tightening has diminished, and the cash rate is likely to be kept at the current 4.35% in the near term despite still-elevated core inflation."
"Taken together, softer headline inflation, a cooling labour market, stagnant wages, and today’s softer GDP outturn reduce the urgency for further tightening, even as core inflation remains elevated."
"Looking ahead, we expect the Australian economy to slow further as the cumulative impact of restrictive monetary policy continues to filter through to households and businesses."
"As such, we expect the RBA to hold the cash rate at 4.35% at its upcoming meeting on 16 Jun, while maintaining a tightening bias as it continues to assess the evolution of inflation dynamics and broader economic conditions."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- The US ISM Services PMI is expected to tick higher in May, up from the 53.6 posted in April.
- Investors will pay attention to the Prices Paid and Employment subindexes ahead of the Fed meeting.
- EUR/USD is in a wait-and-see mode ahead of data, war headlines.
The Institute for Supply Management (ISM) is scheduled to release the May Services Purchasing Managers Index (PMI) on Wednesday. Market participants anticipate a modest improvement, with the index forecast at 53.8, up from 53.6 in April.
The index is a trusted measure of the health of the United States (US) services sector, closely followed by market participants. It is based on a survey conducted by ISM among companies across the US and revolves around the 50 threshold: a reading above it indicates expansion, while a reading below it indicates contraction.
What to expect from the ISM Services PMI report?
The April ISM report showed that economic activity in the services sector remained in expansion territory for the 22nd consecutive month, yet eased from the 54.0 posted in March. Reading employment, “activity in the services sector remained in contraction in April for a second month in a row. The Employment Index registered 48, up from the March figure of 45.2,” while below its 12-month average of 48.6.
The Prices Paid Index, which is directly linked to inflation, registered 70.7, unchanged from March, raising its 12-month average from 67.2 to 67.7, the highest average reading since May 2023.
“There were several comments from respondents stating that they have yet to see petroleum price increases impacting petroleum-related products, so we expect to see continued elevated readings for the Prices Index for several months — regardless of when the conflict in Iran ends — due to these costs working their ways through global supply chains,” the official report adds.
The Employment and Prices Paid indexes are relevant, as they provide early clues on data that shape the Federal Reserve’s (Fed) monetary policy path. The central bank features a new Chair, Kevin Warsh, who will preside over his first monetary policy meeting in mid-June. Warsh was selected by US President Donald Trump to serve as Chair, aiming for a more “friendly” Chair who would not oppose his desire for lower interest rates.
President Trump, however, is also responsible for the ongoing war in Iran, which has brought back inflationary pressure, making it difficult for the Fed to cut interest rates. Quite the opposite: speculative interest keeps betting on potential interest rate hikes before the year is over as inflation is nearly double the central bank’s 2% goal.
The Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge, climbed to 3.8% YoY in April from 3.5% YoY in March, as expected. The core annual PCE Price Index, which excludes volatile food and energy prices, rose 3.3%, also meeting the market’s expectations.
Additionally, the US will release the May Nonfarm Payrolls (NFP) report on Friday, and the employment sub-component from the ISM Service PMI could provide clues on how hiring performed in May.
The headline reading will trigger the initial market reaction. As previously mentioned, a reading above the 50 threshold will be considered positive, although the US Dollar (USD) would surge on a better-than-anticipated outcome, as it would signal economic progress and increase the odds of an upcoming interest rate hike.
A reading above 50 yet below expectations could have a modest negative impact on the Greenback. A surprise reading below the critical threshold, however, will fuel concerns about US economic growth and put the USD under selling pressure.
When will the ISM Services PMI report be released and how could it affect EUR/USD?
The ISM Services PMI report is scheduled for release at 14:00 GMT on Wednesday. Ahead of the release, the US Dollar (USD) is under modest selling pressure, pretty much stable as market participants await news from the Iran war front. Hopes for an agreement are slowly fading as tensions between Israel and Lebanon have interrupted talks between the US and Iran to reach a Memorandum of Understanding (MOU).
Valeria Bednarik, FXStreet Chief Analyst, notes: “The EUR/USD pair trades at around 1.1640, little changed on a weekly basis, holding on to familiar levels. The technical picture for the pair is bearish, though directional momentum is lacking. In the daily chart, the pair develops below all its moving averages, which, anyway, are pretty much directionless and confined to a 40-pip range. At the same time, technical indicators head nowhere below their midlines, reflecting directional uncertainty.”
Bednarik adds: “The war is still the main market driver, although the ISM report could introduce some near-term action. As previously noted, an upbeat report should boost demand for the Greenback and send EUR/USD toward its recent lows in the 1.1580 region. If war-related headlines, in the meantime, trigger risk-aversion, the pair could extend its slump toward the 1.1530 price zone. The opposite case is also valid, with a discouraging ISM Services PMI outcome pushing EUR/USD higher, toward the 100-day SMA at around 1.1690. Finally, a discouraging report alongside renewed hopes for a war ending can push the pair up to 1.1740 and beyond.”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Economic Indicator
ISM Services Employment Index
The ISM Non-Manufacturing PMI released by the Institute for Supply Management (ISM) shows business conditions in the US non-manufacturing sector, taking into account expectations for future production, new orders, inventories, employment and deliveries. It is a significant indicator of the overall economic condition in the US. The ISM Services Employment Index represents business sentiment regarding labor market conditions and is considered a strong Non-Farm Payrolls leading indicator. A result above 50 is positive (or bullish) for the USD.
Read more.Next release: Wed Jun 03, 2026 14:00
Frequency: Monthly
Consensus: -
Previous: 48
Source: Institute for Supply Management
DBS Group Research economist Radhika Rao argues that Eurozone markets face a stagflationary shock from US-Iran tensions that will hit Europe harder than the US, pushing the European Central Bank (ECB) to tighten policy earlier. She expects a 25bps hike in the deposit rate to 2.25% at the June 11 meeting, cautious guidance, possible further hikes in 2H, and a downgrade of 2026 growth to 1.0% with higher inflation.
ECB seen front-loading rate hikes
"It is increasingly apparent that the impact of the stagflationary shock from the US-Iran tensions will impact Europe more than the US, nudging the ECB to tighten policy earlier."
"We expect a pre-emptive (insurance) hike of 25bps in the deposit rate to 2.25% at the June 11 meeting, with policy guidance to stay cautious and hawkish."
"There is a likelihood of further increases in 2H, but the ECB will relay a meeting-to-meeting approach while monitoring the probability of an US-Iran ceasefire and a cessation of tensions."
"We moderate our 2026 growth forecast to 1.0% from 1.4% earlier, while raising annual inflation forecasts."
"Besides the baseline forecast (assuming $90pb oil and EUR50 per MWh gas in 2Q26 and moderating thereafter), the ECB had also outlined adverse and severe scenarios back in March, with implications for its inflation and growth projections."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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