Soft jobs and strong services help Dollar
The latest ADP data signals stabilization in the U.S. labor market after two months of decline, though underlying details point to continued softening in demand. Private-sector payrolls rose by a modest 42,000, reversing the prior month’s downward revision. While any gain is welcome, this increase was entirely driven by large firms. In contrast, employment at small businesses fell for the fifth time in six months. This divergence suggests that while major companies may be selectively expanding, the broader economy, often powered by smaller firms, is still pulling back on hiring. Meanwhile, high-profile layoffs at Amazon, Starbucks, and Target continue to stoke concerns about the labor market’s overall health.
To properly assess the 42,000 gain, one must consider the structural recalibration of the labor market, as analyzed by the Federal Reserve Bank of Dallas. The “break-even employment” rate, the pace of job growth needed to absorb new labor and keep unemployment steady, has collapsed. Driven by reversed immigration flows and cyclical shifts in labor force participation, this threshold has fallen from a peak of 250,000 in 2023 to around 30,000 by mid-2025. In this context, what once seemed alarmingly low now reflects equilibrium, suggesting the 42,000 figure is not weakness, but balance.
Complementing the labor data, the ISM Services Index showed a strong rebound in non-manufacturing activity, expanding at its fastest pace in eight months. This surge was fueled by a sharp rise in demand, with New Orders jumping to 56.2 and Business Activity climbing to 54.3. These forward-looking indicators signal resilient consumer and business demand. Given that services comprise the largest share of the U.S. economy, recession fears may be premature despite soft payrolls.
However, this strength comes with an inflationary sting. The demand rebound pushed the Prices Paid index to a three-year high of 70, highlighting ongoing challenges for monetary policy. The services report also echoed labor stabilization, with its employment index rising to a five-month high of 48.2, still contracting, but at a slower pace. Taken together, modest labor gains consistent with a rebalanced market, surging demand, and persistent service-sector inflation have reduced the likelihood of another rate cut this year. The U.S. dollar remains firmly bid, trading at its highest level since late May and testing key resistance at the 200-day SMA, a technical level closely watched in FX markets.
Beyond the data, investor attention is turning to the U.S. Supreme Court hearings on the legality of certain administration-imposed tariffs, a development that could carry significant implications for trade policy and market sentiment.
As mentioned this past Monday, the data this week may not provide enough of a catalyst, and dollar bulls might need to remain patient. Technically, a strong breakout above its 200-day SMA may still require a more compelling fundamental driver. With the government shutdown becoming the longest on record, the interplay between fiscal uncertainty, the future of trade policy and monetary policy expectations will be key in shaping the dollar’s near-term trajectory.
CAD: Near a 7-month low
After climbing to 1.414, its highest level since April, and notching five consecutive days of gains, the USD/CAD has finally found some respite, even as the U.S. dollar remains firmly bid following upbeat private-sector data. Still trading around 1.41, this streak marked the Canadian dollar’s worst five-day performance since July, underscoring the currency’s vulnerability. As the US Dollar shows signs of stalling, the CAD looks to consolidate the recent move around 1.41.
The release of the federal budget has added to the pressure, with concerns over Canada’s fiscal trajectory weighing on sentiment and dampening the outlook for the Loonie heading into year-end. Meanwhile, the Bank of Canada appears committed to maintaining a supportive stance for an economy that continues to lag its global peers. This dovish bias risks further eroding rate differentials in favor of the U.S., anchoring expectations for a softer Canadian dollar.
Last week’s brief dip in USD/CAD below 1.39 following the BoC’s rate cut was swiftly reversed. The pair surged back above 1.40 after Fed Chair Powell signaled that a December cut is not guaranteed, prompting markets to reassess the “two and through” narrative. The Loonie’s late-October weakness was compounded by Friday’s soft August GDP print, which highlighted fragile momentum heading into Q4. This was further exacerbated by a stronger U.S. dollar.
Looking ahead, beyond fiscal concerns, markets will be closely watching tomorrow’s Canadian employment report. Also, markets will be closely watching developments from the U.S. Supreme Court hearings on the legality of administration-imposed tariffs. Since sectoral tariffs have not been enacted under the IEEPA framework, a ruling against IEEPA-based tariffs is unlikely to materially alter the current outlook for regional trade.
MXN: Holding YTD gains
This week, the Mexican peso slumped to its weakest level since last September against the U.S. dollar, as a wave of risk aversion swept through global markets following warnings from Wall Street executives urging investors to prepare for a pullback in U.S. equities.
The decline coincided with recent growing expectations of a more dovish trajectory for Banxico. Over the last week, the peso started sliding, mirroring broader weakness across emerging-market assets, afterFed Chair Jerome Powell tempered hopes for a December rate cut. Domestically, Mexico’s economy contracted by 0.3% quarter-on-quarter in Q3, marking only the second quarterly decline since early 2021. The downturn was driven by a roughly 1.5% drop in industrial output, weighed down by U.S. auto tariffs, stagnant services activity, and a slowdown in annual growth to just 0.2%.
Struggling against a strengthening U.S. dollar, the peso failed to hold lower support levels. After consolidating around 18.4 for much of October, it weakened into October-end, breaking above its 50-day Simple Moving Average and testing key resistance at 18.7. As market sentiment returns to calm, the Peso inches closer to 18.5. A sustained move higher in USD/MXN hinges on continued Dollar strength and worsening global market sentiment—both of which appear to be stalling at current levels. For the short-term, the USD/MXN is expected to continue trading around 18.5-18.6, holding year-to-date gains at 12%.
Attention now turns to Banxico’s policy meeting today, where a 25-basis point rate cut to 7.25% is widely expected. Markets will be closely watching the tone of the central bank’s statement, with expectations leaning toward a dovish message. In this context, after today’s meeting, it is likely that Banxico will closely mirror the Federal Reserve’s actions in upcoming meetings.
FX markets show signs of overextension across the board
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: November 3-7
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
