US Dollar (DXY) Index News: Pressured as Treasury Yields Fall on Soft ADP Data

U.S. Dollar Declines on Weak Economic Data and Falling Treasury Yields

The U.S. Dollar Index (DXY) is trading lower against a basket of major currencies on Wednesday. This decline follows a drop in 10-year Treasury yields, which retreated in response to weak economic data, signaling a potential slowdown in the U.S. economy.

Treasury Yields React to Economic Data

The yield on the 10-year U.S. Treasury fell by approximately 7 basis points to 4.364%, while the 2-year Treasury yield decreased by about 5 basis points to 4.685%. The decline in yields was triggered by economic reports suggesting that the labor market is losing momentum. ADP data revealed weaker-than-expected private payroll growth for June, and weekly unemployment claims surpassed economists’ forecasts.

Gold, Silver Prices Surge on Higher Demand

Gold (XAU/USD) prices jumped over 1.5% on Wednesday as lower yields and a weaker greenback drove up foreign demand for dollar-denominated bullion.

Labor Market Indicators

According to ADP, companies added 150,000 jobs in June, falling short of the revised May figure of 157,000 and below the Dow Jones consensus estimate of 160,000. This marks the smallest monthly gain since January. The leisure and hospitality sector was the standout, adding 63,000 jobs. Other sectors with job gains included construction (27,000), professional and business services (25,000), other services (16,000), and trade, transportation, and utilities (15,000). However, declines were noted in natural resources and mining (down 8,000), manufacturing (down 5,000), and information (down 3,000).

ADP’s chief economist, Nela Richardson, noted that while job growth remains solid, it is not broad-based. Without the rebound in leisure and hospitality hiring, June’s job growth would have been significantly weaker. Wage gains also slowed, with year-over-year increases for job stayers at 4.9%, the smallest rise since August 2021, and job switchers at 7.7%.

Upcoming Nonfarm Payrolls Report

ADP’s report precedes the Labor Department’s nonfarm payrolls report, expected to show an addition of 200,000 jobs for June, following a 272,000 increase in May. Historically, ADP’s figures tend to undershoot the Bureau of Labor Statistics (BLS) count, which reported a 229,000 rise in private payrolls for May, significantly higher than ADP’s estimate.

Market Reactions and Economic Concerns

Bond yields declined further after the ISM services data fell below economists’ expectations, adding to concerns about an economic slowdown. The bond market closed early on Wednesday and will remain closed on Thursday for the Fourth of July holiday. Traders are also anticipating the minutes from the Federal Open Market Committee’s June meeting, which will be released later Wednesday afternoon.

Fed’s Inflation Stance

On Tuesday, Federal Reserve Chair Jerome Powell emphasized the need for more progress on inflation before considering rate cuts. Speaking at a monetary forum in Sintra, Portugal, Powell highlighted that while the U.S. is moving towards a disinflationary path, the Fed requires more confidence that inflation is sustainably declining towards the 2% target before easing policy.

Market Forecast

Given the weak economic data and falling Treasury yields, the U.S. Dollar is likely to face further pressure in the near term. Traders should monitor upcoming data releases, including the nonfarm payrolls report, for additional insights into the labor market and potential impacts on the dollar’s trajectory. The current environment suggests a bearish outlook for the U.S. Dollar Index as economic uncertainties persist.

Technical Analysis

The U.S. Dollar Index is sharply lower on Wednesday, putting it in a position to takeout the 50-day moving average at 105.149. The move should put further pressure on the index, while bringing the 200-day moving average at 104.500 to the forefront.