ADP Employment Report expected to confirm a tight labour market in September

On Wednesday, the Automatic Data Processing (ADP) Research Institute is set to release its September monthly report on private-sector employment creation in the United States. The anticipated report is expected to confirm that net employment in the U.S. private sector increased by 72,000 jobs in September, nearly double the 38,000 new jobs reported in August.

The ADP data is closely monitored by markets as it sets the tone before the Federal Reserve's (Fed) Nonfarm Payrolls (NFP) report, typically released a few days later.

However, this time, the ADP report will have to compete for attention with the key U.S. Personal Consumption Expenditures (PCE) Price Index data, the Fed's preferred gauge for assessing inflationary trends. The PCE Price Index will be released 15 minutes after the ADP report, potentially stealing the spotlight. Investors are optimistic about U.S. employment trends, following the robust August Nonfarm Payrolls report, which indicated a 162,000 net increase in job creation and a steady Unemployment Rate of 4.1%, the lowest level in over a year.

Moreover, recent labor market data, such as lower jobless claims and weekly private employers adding an average of 20,000 jobs per week, has contributed to maintaining a positive outlook. Consequently, markets are expecting September's labor data to confirm that the job market remains tight, which, combined with strong inflationary pressures due to high energy prices, could prompt the Fed to implement further monetary tightening in October or by December at the latest.

Futures markets currently price in a 70% chance of a quarter-point interest rate hike in October and a 60% probability of a 50 basis point increase before the end of the year, according to the CME Group's FedWatch Tool.

That said, the ADP outcome will be contrasted with the PCE Price Index report for a more comprehensive view of the Fed's monetary policy outlook. High consumer prices, driven by geopolitical uncertainties in the Middle East and rising oil prices, are expected to keep Core CPI above the Fed's target, reinforcing the central bank's hawkish stance.

Fed Governor Lisa Cook emphasized that the magnitude of future rate adjustments will be determined by inflation and labor market data, further intensifying interest in the upcoming releases.

If the ADP data meets expectations and the PCE Price Index figures remain strong, it could bolster hopes for another Fed interest rate hike in October, providing additional support to the U.S. Dollar (USD). Forex analysts at Societe Generale predict that higher inflation and resilient real-economy data might lift the Dollar Index to near-2026 highs or push EUR/USD to new lows, highlighting the potential for further Greenback strength amidst the release of economic data.

The US Dollar Index (DXY) has demonstrated a solid bullish trend, rallying almost 2.5% in the past three weeks, pushing price action to two-month highs near 101.50 as of now.