With a December Fed rate cut almost fully priced, market attention is shifting to the outlook for 2026, as expectations of a more dovish Fed could weigh on the dollar in the months ahead. Today’s November ADP employment data could move the dollar slightly if it surprises to the downside, but the official labor market report and future Fed guidance remain the key determinants of dollar direction, Commerzbank's FX analyst Antje Praefcke notes.

Market eyes future Fed guidance more than one meeting

"I would like to add one point to my thoughts from yesterday. It concerns the Fed meeting and interest rate expectations for next week. A cut next week is almost completely priced in. So, at least from this side, there should be little additional downward pressure on the dollar. However, we have often emphasized that it is less about this one interest rate meeting and more about what the market expects in the future. And this is where the Fed's potentially more dovish stance in the coming year, as mentioned yesterday, comes into play."

"Regardless of the future composition of the FOMC, US data to be released in the coming days could at least affect the dollar in that, if weaker than expected, it could reinforce expectations of interest rate cuts in 2026. The market currently has no better indicators than the 'old' September or October data, which fell victim to the weeks-long shutdown and are now gradually coming to light. That is why the market will probably also focus its attention on the ADP numbers for November, which are being published today."

"We all know that the ADP data are not a good indicator for the BLS's official labor market report. But it is at least an indicator. So if the index falls even below the already low expectations, the dollar could take a slight hit, especially in view of possible further interest rate cuts in the coming year. On the other hand, a surprisingly good ADP index is likely to give the dollar only a brief respite, if any. After all, the truly meaningful indicator is the official labor market report. And it is unclear how dovish the Fed might sound as early as next week. This will probably make it difficult to push the dollar higher, even if some data turns out better than expected."