ADP Employment Change projected to show US job growth slowing in February

• The ADP Employment Change, and the US labour market, take centre stage this week.
• The US private sector is seen adding 140K new jobs in February. 
• The US Dollar Index continues to trade in the lower end of the range.

The US labor market is set to take center stage this week as fresh concerns mount that the economy may be losing its momentum -- a sentiment echoed by recent slower growth and worrisome fundamental data.

In the spotlight, the ADP Research Institute is poised to release its February Employment Change report on Wednesday, offering a snapshot of private-sector job creation.

Typically coming out two days before the official Nonfarm Payrolls (NFP) report, the ADP survey is often seen as an early indicator of trends expected in the Bureau of Labor Statistics (BLS) jobs report -- even if the two don't always tell the same story.

The economic equation: Job growth and Fed policy in focus

Employment is critical as it forms one of the two legs of the Federal Reserve's (Fed) dual mandate. The US central bank is tasked with maintaining price stability while pursuing maximum employment. As inflationary pressures remain stubborn, the focus appears to have temporarily shifted to the performance of the US labour market following the Fed's hawkish stance at its January 28-29 meeting.

In the meantime, investors continue to closely monitor the White House's trade policies and their consequences, particularly after US tariffs on Canadian and Mexican imports took effect on March 4. Fears that these levies could fan the flames of a resurgence in inflationary pressure have driven both the Fed's prudent approach and the cautious remarks from many of its policymakers.

So far, and in light of the recent set of weaker-than-expected results that have challenged the notion of US "exceptionalism", market participants now expect the Fed to reduce interest rates by 50 basis points this year.

Amid the ongoing tariff turmoil, the apparent slowing momentum of the US economy, and persistent consumer price pressures, the ADP report -- and especially Friday's Nonfarm Payrolls report -- has gained renewed relevance and could help shape the Fed's next move.

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

The ADP Employment Change report for February is set to drop on Wednesday at 13:15 GMT with forecasts pointing to an addition of 140K new jobs following January's gain of 183K. In anticipation, the US Dollar Index (DXY) remains securely on the defensive, putting the key support at 106.00 to the test amid rising jitters over the US economy.

If the ADP report delivers robust numbers, it could momentarily cool the mounting concerns over the US economic slowdown. However, if the results fall short of expectations, it might reinforce worries that the economy is losing momentum--potentially prompting the Fed to reconsider an earlier restart of its easing cycle.

According to Pablo Piovano, Senior Analyst at FXStreet, "If the recovery gains traction, the DXY could revisit the weekly peak of 107.66 (February 28), a region that appears reinforced by the proximity of the transitory 55-day SMA around 107.90, ahead of the February high of 109.88 set on February 3, and the YTD peak of 110.17 from January 13. Surpassing that level might pave the way toward the next resistance at the 2022 high of 114.77 recorded on September 28.

"On the flip side, if sellers manage to seize control, the index might first find support at the 2025 bottom of 105.89 reached on March 4, prior to the December 2024 bottom of 105.42, and eventually at the critical 200-day SMA in the 105.00 zone. Staying above that key threshold is essential for sustaining bullish momentum," Piovano concludes.