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Dollar Falls Sharply As Weak ADP Data Fuels Fed Rate Cut Hopes

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The U.S. dollar moved down against its major opponents in the European session on Wednesday, as the U.S. private sector job growth slowed much more than forecast in May, igniting fears over a possible recession in the economy and triggering hopes for a Fed rate cut in near future.

Data from payroll processor ADP showed that private sector employment edged up by 27,000 jobs in May after spiking by a downwardly revised 271,000 jobs in April.

Economists had expected employment to increase by 180,000 jobs compared to a jump of 275,000 jobs originally reported for the previous month.

The ADP data serves as a precursor to non-farm payrolls data to be released on Friday.

Employment is expected to climb by 185,000 jobs in May after surging by 263,000 jobs in April, while the unemployment rate is expected to hold at 3.6 percent.

Market participants are convinced about the possibility of Fed rate cut after Fed Chair Jerome Powell opened the door for a rate reduction this year, as escalating trade tensions would have a negative impact on the economy.

Speaking in Chicago on Tuesday, Powell said that the Fed would "act as appropriate" to the challenges emerging from growing trade tensions and other recent developments.

Powell's remarks came a day after St. Louis Fed President James Bullard indicated that rate cuts "may be warranted soon" in the wake of the U.S.'s international trade conflicts.

The greenback was lower against its major opponents in the Asian session, following remarks by Powell signaling willingness to reduce rates to sustain economic expansion.

The greenback lost 0.7 percent to near a 5-month low of 0.9855 against the franc, after rising to 0.9929 at 4:30 am ET. The pair was valued at 0.9920 when it ended Tuesday's trading. Further downtrend may take the greenback to a support around the 0.96 mark.

The greenback weakened to 107.82 against the Japanese yen, a level that has not been seen since January 10. This marked a 0.5 percent decline from a 2-day high of 108.38 touched at 7:30 am ET. The greenback-yen pair had finished deals at 108.15 on Tuesday. The greenback may challenge support around the 106.00 region, if it slides further.

The latest survey from Nikkei showed that Japan services sector continued to expand in May, albeit at a slower pace, with a services PMI score of 51.7.

That's down marginally from 51.8 in April, although it remains above the boom-or-bust line of 50 that separates expansion from contraction.

Having strengthened to 1.1250 against the euro at 5:30 pm ET, the greenback lost ground, falling 0.5 percent to 1-1/2-month low of 1.1307. The greenback was trading at 1.1252 a euro at Tuesday's New York session close. Should the greenback continues its downtrend, 1.14 is likely seen as its next support level.

Final data from IHS Markit showed that the euro area private sector expanded more than initially estimated in May, extending the current sequence of growth to just below six years.

The composite output index rose to a 3-month high of 51.8 in May from 51.5 in April. The reading was slightly above the flash 51.6.

The greenback was lower by 0.4 percent at a 9-day low of 1.2744 against the pound, following a high of 1.2687 recorded at 5:00 pm ET. The pair closed yesterday's trading at 1.2689. Continuation of the greenback's downward trading may lead it to a support around the 1.28 level.

Survey data from IHS Markit showed that the UK service sector growth improved to a three-month high in May.

The Chartered Institute of Procurement & Supply services Purchasing Managers' Index rose to 51.0 in May from 50.4 in April.

Extending its early decline, the greenback depreciated to 0.6667 against the kiwi, its lowest since May 1. The greenback thus fell 0.9 percent against the NZ currency from Tuesday's closing quote of 0.6605. The greenback is seen challenging support around the 0.68 mark.

The greenback fell back to 0.7001 against the aussie, not far from near a 4-week low of 0.7008 set at 2:15 am ET. At Tuesday's close, the pair was quoted at 0.6991. On the downside, the greenback is likely to target support around the 0.715 mark.

Data from the Australian Bureau of Statistics showed that Australia's gross domestic product gained a seasonally adjusted 0.4 percent on quarter in the first three months of 2019.

That was in line with expectations and up from the 0.2 percent increase in the three months prior.

In contrast, the greenback remained higher at 1.3391 against the loonie, up from a 2-week low of 1.3363 seen at 6:00 am ET. Next key resistance for the U.S. currency is seen around the 1.35 level.

The U.S. ISM non-manufacturing composite index for May and Federal Reserve's Beige book report will be out in the New York session.

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