Dollar gains as ADP shows better than expected jobs gains

By Karen Brettell

NEW YORK (Reuters) – The dollar hit a three-week high against the euro on Wednesday after the ADP national employment report showed U.S. private payrolls increased more than expected in September, ahead of Friday’s highly anticipated jobs data.

Traders are also keeping a close eye on geopolitical tensions a day after Israel was attacked by Iran in a strike that raised fears the oil-producing Middle East could be engulfed in a wider conflict.

Private payrolls increased by 143,000 jobs last month after rising by an upwardly revised 103,000 in August, the ADP National Employment Report showed on Wednesday. Economists polled by Reuters had forecast 120,000 job additions.

“The ADP number looked pretty good and points to a decent NFP print,” said Brad Bechtel, global head of FX at Jefferies in New York.

The government nonfarm payrolls report for September on Friday is expected to show employers added 140,000 jobs during the month, while the unemployment rate stayed steady at 4.2%, according to economists polled by Reuters.

Improving economic data and more hawkish comments from Federal Reserve Chair Jerome Powell on Monday have boosted the dollar and led traders to pare bets that the U.S. central bank will cut rates by another 50 basis points when it meets next month.

There is “a little bit of a subtle shift here where people are less concerned about the U.S., pricing less in terms of aggressive rate cuts here in the U.S., and shifting views on other areas,” Bechtel said.

Traders are now pricing in a 34% probability of a 50 basis point cut at the Fed’s Nov. 6-7 meeting, down from 57% a week ago, the CME Group’s FedWatch Tool shows.

The Institute for Supply Management’s non-manufacturing report on Thursday will also provide further clues on the strength of the U.S. economy.

The dollar index rose to 101.58, the highest since Sept. 11, from 101.20 late on Tuesday. The euro fell to $1.10433, the lowest since Sept. 11, from $1.10683.

The single currency has weakened on increasing expectations that the European Central Bank will cut interest rates later this month as inflation recedes.

The yen also weakened after Prime Minister Shigeru Ishiba said Japan is not in an environment for an additional rate increase, an apparent effort to shake off his reputation as a monetary hawk, after a meeting with Bank of Japan Governor Kazuo Ueda on Wednesday.

The dollar gained to 145.73 yen from 143.57 late on Tuesday.

Demand for safe haven currencies including the yen and the Swiss franc ebbed on Tuesday as tensions in the Middle East appeared to die down.

Iran said on Wednesday the attack – its biggest assault on Israel – was over barring further provocation, but Israel and the U.S. promised to hit back hard.

(Reporting By Karen Brettell; Additional reporting by Harry Robertson and Tom Westbrook; Editing by Jan Harvey)