Not all US economic data is stellar, but the most important data supports expectations of a Fed interest rate hike.

The US dollar initially weakened in three trading sessions today but suddenly gained strength following a series of the latest US economic data during the New York session on July 6th. The US Dollar Index (DXY) surged to the range of 103.55. EUR/USD dropped to its lowest level in five days, while AUD/USD declined by 0.8% to its lowest level in a week.

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There were at least five major economic reports from the United States today. Two missed expectations, namely the weekly jobless claims data and JOLTS job openings data. Meanwhile, the other three showed better-than-expected performance, which includes the ADP Non-Farm Employment Change data, Markit Services PMI, and ISM Non-Manufacturing PMI.

ADP reported a significant increase in new job additions, reaching 497k in June 2023 in the US. This figure was more than twice the consensus estimate of 228k and far exceeded the recorded figure of 267k in May.

The impressive increase in the ADP data overshadowed the slight setbacks in the other two employment data. Moreover, the survey results from the Markit and ISM Purchasing Managers' Index (PMI) indicated sustained expansionary growth in the services sector, including in its employment sub-index.

It all points towards a consistently hawkish US interest rate policy, in line with previous statements from the Chair of the Federal Reserve. In its upcoming release tomorrow, the optimistic ADP and ISM data also increase market expectations for better-than-expected US Non-Farm Payroll data.

"The Fed has been hopeful to see a modest deterioration in the labor market," said Randy Frederick, managing director of trading and derivatives for Charles Schwab. "But since the ADP number was almost twice of what was expected, it generally implies there's potential for more rate hikes going forward."

The latest market data shows an increase in the probability from 90% to 95% for a 25 basis point interest rate hike by the Federal Reserve in the upcoming FOMC meeting on July 25-26. As a result, Wall Street stock indices experienced a decline, while the US dollar gained strength again.