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Employment in the United States' (US) private sector increased by 86K in October, the Automatic Data Processing (ADP) reported on Wednesday. This reading followed September's increase of 86K (revised from 90K) and came in better than the market expectation of 69K.

Assessing the report's findings, "employers of all sizes were hiring last month, and our data suggests that job-changers were lured by a combination of bonuses, overtime, and more hours in addition to higher base pay," Dr. Nela Richardson, Chief Economist at ADP, said and added: "Taken together, earnings growth for these workers hit its fastest pace since March 2024."

Market reaction to US ADP Employment Change data

The US Dollar struggles to benefit from the upbeat labor market data in the early American session on Wednesday. At the time of press, the USD Index was down 0.65% on the day at 101.25.

This section below was published as a preview of the US ADP Employment Change data at 08:00 GMT.

• The US ADP Employment Change report is forecast to show a 69K increase in net jobs in October.
• Barring a strong disappointment, October’s ADP is unlikely to hurt confidence in the upbeat US economic momentum.
• The impact on the US Dollar is likely to be limited, with the outcome of the midterm elections front and center and ahead of the NFP report on Friday.

The Automatic Data Processing (ADP) Research Institute is due to release October’s private-sector employment report on Wednesday. The market consensus anticipates a moderate slowdown in job creation, with the ADP Employment Change expected to show 69K new private jobs in October, down from 90K in September.

ADP data is closely watched by financial markets, as it sets the stakes for the all-important Nonfarm Payrolls (NFP) report, normally released a couple of days later by the US Bureau of Labor Statistics (BLS). On Wednesday, however, the ADP report will have to share the spotlight with the US ISM Services Purchasing Managers Index (PMI) and, above all, market speculation about the consequences of the Democrats' victory in the US midterm elections.

ADP Jobs Report set to show lower employment growth but a solid labour market 

October’s ADP employment report comes after a string of strong US macroeconomic releases that have boosted investors’ confidence in the US economic outlook. Preliminary Gross Domestic Product (GDP) data released last week shows that the economy grew at a 3.4% annualised rate in the third quarter, with consumer spending, investment and government expenditure leading growth.

Beyond that, Monday’s US ISM Manufacturing PMI showed factory activity accelerated beyond expectations, suggesting that the economy entered the fourth quarter on a strong footing.

All this supports the theory of US economic exceptionalism, which, coupled with the strong inflation pressures, provides the ideal scenario for the Federal Reserve (Fed) to tighten its monetary policy further. According to the CME FedWatch tool, futures markets are pricing in a 75% chance of another quarter-point rate hike in December, a scenario that is keeping the US Dollar Index (DXY) relatively steady near year-to-date highs. 

Against this background, October’s ADP employment report should show a strong setback to cause a major disruption. September’s Nonfarm Payrolls report showed a 29K increase in employment following 133K new jobs in August, which suggests that the labour market is stabilising, with no clear signs of a decline so far.

That said, the Greenback might remain on the defensive on Wednesday, amid the consequences of the sound Democratic win in the US midterm elections. Francesco Pesole, Analyst at ING assesses that “a Democratic sweep (...) could be seen as slightly negative for the US Dollar from a few angles, from higher risk of government shutdown and gridlock on debt ceiling negotiations to potential damage to already shaky AI-related sentiment.” 

When will the ADP report be released, and how could it affect the US Dollar?

The US ADP Employment Change report will be out on Wednesday at 13:15 GMT, and it is expected to show that the private sector created 69K new jobs in October. The final data is unlikely to alter market expectations of a Fed rate hike in December, and therefore, its impact on the US Dollar (USD) is likely to be limited, with markets focused on the outcome of the midterm elections ahead of the all-important NFP report on Friday.

A few hours later on Wednesday, the US ISM Services PMI is expected to show a mild slowdown in October, yet at levels consistent with expansion and solid business activity in the sector. Again, it would require very disappointing figures to dent markets’ confidence in the strength of the US economy.

The US Dollar Index (DXY) technical picture shows the index hovering within the lower end of its trading range since early October, with the 4-hour chart showing a neutral-to-bearish near-term tone. The Relative Strength Index (14) sits below the mid-50 area, hinting at subdued directional conviction, while the Moving Average Convergence Divergence (MACD) histogram remains negative, all in all highlighting mild bearish pressure rather than a decisive negative trend.

According to Guillermo Alcalá, FX analyst at FXStreet, the DXY should break support at the 101.50 area (October 22 and November 2 lows) to confirm a trend shift and clear the path towards the late-September lows between 101.00 and 100.90.

On the upside, Alcalá sees the October 30 high, just above 102.00, and the October 28 and 29 highs around 102.50 as major resistances ahead of the 18-month high, at 102.95, hit in mid-October.

ING economists highlight the Democrats’ decisive victory in the US midterm elections, securing control of both chambers of Congress. They expect the outcome to constrain President Trump’s domestic agenda over his final two years in office, with tax and spending proposals likely facing legislative gridlock. While further fiscal expansion appears unlikely, large budget deficits and deteriorating debt dynamics are expected to persist, with the debt ceiling potentially acting as a temporary brake.

Congressional gridlock and persistent fiscal risks

"With most votes counted, it's clear the Democrats have secured a decisive victory in the US midterms, claiming majorities in both the Senate and House of Representatives."

"The obvious outcome from the result on Tuesday is that a Democrat-controlled Congress will stifle President Trump’s domestic agenda in his final two years in power."

"The consequence is that spending and tax proposals, as with most domestic legislation, will likely be gridlocked."

"While we won’t see any further fiscal expansion, large fiscal deficits and deteriorating debt dynamics will continue."

"The fiscal situation will certainly remain a concern, although hitting the debt ceiling could act as a temporary brake."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• The US Dollar Index dives on Wednesday, extending losses to a four-week low of 101.21.
• The Democratic Party's landslide victory has sent the US Dollar tumbling on Wednesday.
• Concerns about AI regulation have pushed investors away from equities to the safety of US Government bonds, weighing on yields and the USD.

The US Dollar (USD) is showing the weakest performance among the major currencies on Wednesday, hammered by the US President Donald Trump’s and the Republican Party's defeat in the midterm election. The US Dollar Index (DXY), which measures the USD against six majors, is trading 0.6% lower on the day, with bears launching a fresh attack to the 101.25 support area at the time of writing.

The Democrats took control of the US Congress and the more disputed Senate in Tuesday's elections, which delivered a historic defeat to the Republican Party, which has lost historical strongholds like Texas, Kansas and North Carolina, where Republicans had held the government for decades.

Tech shares came under pressure after the election outcome. Concerns that Democrats will push for tougher regulation in the AI sector and stop most plans to build data centers provided a fresh blow to tech shares during the Asian session and boosted demand for the safe-haven government bonds. The yield of the 10-year note dropped a maximum of 10 pips following the election results, adding bearish pressure on the USD.

ING: Overnight price action provides a preview for markets in 2027

ING’s Chris Turner observes that the fact that the Democrats do not take office until January might have calmed investors and kept the US Dollar from falling further, but warns that “overnight price action could provide a preview for markets in 2027," as, in his opinion, "A Democratic Congress would be a mild dollar negative – both in terms of what it would mean for the AI story and the prospect of a prolonged US government shutdown."

Bearing this in mind, the ING Analysis Team sees US Dollar bears contained amid “a still-resilient US economy and at least one more rate hike from the Federal Reserve.”

In that sense, the US ADP Employment Change and the ISM Services Purchasing Managers' Index (PMI) will gather particular interest later in the day. The highlight of the week, however, will be Friday's Nonfarm Payrolls (NFP) report. Anything different from a strong labour market report next Friday might increase doubts about the US economic outlook and add pressure on the USD.

(This story was corrected on November 4 at 13:49 GMT to correct the day of the week in the first paragraph, which is Wednesday instead of Thursday.)

Societe Generale’s Kit Juckes discusses the Dollar’s post-election weakness as US equities and technology stocks initially sold off before recovering. He notes US strategists see a strong economy and limited fiscal impact from a Democrat-controlled Congress, suggesting the Dollar dip may be temporary. However, heavy long-Dollar positioning and elevated geopolitical and economic uncertainty could allow further downside next year.

Dollar under pressure after US elections

"The suggestion is that as foreign investor appetite for Treasuries wanes, while appetite for US equities surges, the dollar rises with equity indices."

"So the dollar fell with the equity indices, but they have recovered their poise, while the dollar remains under pressure."

"On that take, nothing changes and we should buy the dollar dip, once positioning has been cleaned up."

"Add that to lopsided positioning among FX traders (lots of dollar longs, with notable shorts in the euro, the pound and the Australian dollar (but not the yen), and the current correction can go further."

"Overall, I’m minded to conclude that 1) the market was very long dollars and the elections are a catalyst for position reduction; 2) the level of economic, geopolitical and market uncertainty is very elevated, which points to choppy FX markets; And 3) if regulation, or party politics slow the US economy, then the dollar has plenty of room to fall next year, but it’s too early to conclude that is what will happen and in the meantime, I’m loath to get over-excited about this dollar correction while oil prices remain elevated and the conflict in the Gulf is unresolved."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Nordea’s report highlights that Euro-area headline inflation rose to 4.0% in October, driven largely by energy and a rebound in food prices. Core inflation stayed at 2.5%, with modest second-round effects so far. Nordea expects two more ECB rate hikes, noting downside risks from tighter financing conditions and weaker economic activity but still seeing a clear case for gradual tightening.

Inflation drivers and ECB outlook

"Euro-area flash inflation rose to 4.0% in October (3.8% in September, 4.0% consensus), double the ECB’s target."

"High inflation continues to be driven by energy prices, which rose by 20.8% y/y and now account for around half of headline inflation."

"Food price inflation, which fell to surprisingly low levels in the third quarter, rebounded to 1.6% and could be an early indication of second-round effects from high energy prices."

"Core inflation remained at 2.5% (consensus 2.5%), although both services inflation (3.3%) and non-energy industrial goods inflation (1.2%) accelerated slightly."

"While many countries reported higher transport services inflation, the available information otherwise points to very limited second-round effects in the services sector."

"Tighter financing conditions and weaker economic development are downside risks to our ECB baseline, but the case for further hikes remains rather clear for now."

"The central bank still expects to see gradually broadening price pressures, which supports the case for gradual monetary tightening."

"The recent price data does not change our view of two further ECB rate hikes."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• USD/JPY trims a part of earlier losses as the Japanese Yen struggles to benefit from broad US Dollar weakness.
• US midterm results push the US Dollar to five-week lows.
• Wide interest rate differentials limit the Yen’s gains despite the BoJ’s hawkish stance.

USD/JPY trades with a negative bias on Wednesday as the US Dollar (USD) slides to five-week lows following the US midterm election results. However, the Japanese Yen (JPY) struggles to capitalize on the Greenback’s weakness, trimming a large part of its earlier gains while underperforming most major peers.

At the time of writing, USD/JPY trades around 158.32, down 0.24% on the day, after reaching an intraday low of 157.39.

The US Dollar came under pressure as Democrats’ victory in both houses of Congress sets the stage for a divided government, raising the risk of political gridlock in Washington and adding uncertainty over fiscal policy. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.40, down 0.44% on the day and near five-week lows.

Analysts at MUFG/BTMU argue that the recent US mid-term election outcome is “unlikely to impact the US-Japan relationship and the strong message emanating from Washington over its opposition to the continued weakness of the yen.” They note that the latest bout of Yen strength offers only limited relief, stressing that “the reprieve for the yen is marginal (today’s gain is USD-related) with the rates/FX link for the yen still relatively weak.”

MUFG/BTMU point out that “intervention in July / early August has distorted the link with rates,” but add that the currency’s behaviour continues to highlight deeper forces at work: “what the movement of the yen does indicate is that there are still some structural flows that continue to weigh on yen performance and those flows could well be slow to change.”

The interest rate gap between Japan and other major economies remains wide, with the Bank of Japan’s (BoJ) policy rate at 1.25%. While the BoJ is tightening gradually, inflation pressures from the Middle East energy shock have prompted other major central banks to raise interest rates, with further hikes also expected.

Traders price in an 82% chance that the Federal Reserve (Fed) will raise interest rates again in December, according to the CME FedWatch Tool. The prospect of further tightening could also cushion the US Dollar’s decline.

As a result, the BoJ’s hawkish stance offers limited support to the Yen, as interest rate differentials are expected to remain wide, leaving the currency at a yield disadvantage. Nevertheless, intervention warnings from Japanese officials keep traders cautious about betting against the Yen. Finance Minister Satsuki Katayama said on Monday that Japan would act against disorderly or excessively speculative currency moves.

Looking ahead, Japan’s economic calendar remains light for the rest of the week, leaving US data in focus. Wednesday brings the ADP Employment Change report and ISM Services PMI, followed by Initial Jobless Claims on Thursday and Nonfarm Payrolls (NFP) on Friday.

Commerzbank’s Volkmar Baur highlights that South African local elections and coalition outcomes could affect national reform momentum, while the US decision to remove AGOA preferences from next year threatens key export sectors such as autos and agriculture. He concludes that constructive national cooperation and continued structural reforms are crucial, but near-term conditions for the Rand remain difficult.

Reform risks and export headwinds

"While votes are still being counted in the US, South Africans are heading to the polls today. Mayors and municipal councils are up for election across the country, with the city governments of Johannesburg, Cape Town and Durban likely to attract particular attention. Clear-cut election results are unlikely in most cases, meaning that the vote will probably be followed by coalition negotiations that could drag on for several weeks."

"From a capital-market perspective, the election is not entirely straightforward to interpret. A strong showing by the Democratic Alliance (DA) would certainly be welcomed by markets. However, if the DA were to perform so strongly that the African National Congress (ANC) felt threatened, the local elections could put pressure on the coalition at the national level."

"This, in turn, would be negative for reforms and the economic outlook. It will also be interesting to see what kind of coalitions the ANC is prepared to enter into if faced with a choice between the DA and the left-wing Economic Freedom Fighters (EFF) or uMkhonto weSizwe (MK). Should the more left-leaning factions within the ANC prevail, this too could put a strain on the coalition at the national level."

"The geopolitical backdrop underscores just how important further reforms remain. On Monday, the US announced that South Africa will no longer benefit from the African Growth and Opportunity Act (AGOA) from the beginning of next year."

"For the rand, it will therefore be all the more important that the coalition at the national level quickly resumes constructive cooperation after the local elections and continues to push ahead with structural reforms. For the time being, however, the environment for the ZAR remains challenging."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

ING’s Chris Turner notes Democrats’ sweeping midterm victory has initially weighed on the Dollar and short-dated US rates, but much of the move is being reversed as investors refocus on a strong US economy and a tightening Federal Reserve. He highlights DXY support near 101.25 and warns that any bond market upset could pressure USD/CHF, echoing August’s reaction.

Democrat win and AI worries

"Given AI's role in powering the US economy, speculation over whether a new Democrat Congress would slow AI capex plans briefly hit markets. The chip exporter-heavy stock markets of Korea and Taiwan were briefly down 3-4% overnight on news of the blue wave, but have since recouped all those losses."

"That the initial market moves are being reversed probably owes to the fact that the Democrats do not take office until January. Also, one wild-card risk removed from the dollar's downside has been President Trump accepting these results. However, overnight price action could provide a preview for markets in 2027."

"We had felt that a Democrat Congress would be a mild dollar negative – both in terms of what it would mean for the AI story and the prospect of a prolonged US government shutdown potentially from next summer."

"Also in focus today will be the 1330CET release of the US Treasury's quarterly refunding plans. Views are that the Treasury will continue to try cutting long-end supply. Let's see whether the short-end can handle all the new issuance."

"As above, we would not chase the dollar lower today for what, after all, could be a 2027 story. Instead, the dollar looks likely to be traded through the macro/monetary lens, which remains supportive. The overnight DXY low of 101.25 looks to be an important support level which may hold into October jobs report."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)