US Dollar Weekly Forecast: The US labour market takes centre stage
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UPGRADE- The US Dollar Index failed to extend its bounce past 100.50.
- A US court ruling put Trump’s tariffs to the test.
- Investors shift their focus to the US labour market.
The US Dollar (USD) navigated choppy waters this week, briefly hitting new multi-day highs above the psychological 100.00 barrier, just to fade that move almost immediately and end the week in the mid-99.00s, as measured by the US Dollar Index (DXY).
The picture is even gloomier when one looks at the monthly chart, which shows the fourth consecutive month in red, shedding nearly 10% since the tariff-led peaks recorded in early February.
US trade policy has once again dominated the past few days, especially after a US court ruling that challenged the White House's trade strategy.
In the US bond market, yields traded consolidatively at the short and medium ends of the curve, while the long end declined, reaching multi-day lows.
A separate trade deal between the US and the United Kingdom (UK) had already lifted investor sentiment and given the Greenback a boost. The US-China agreement only added fuel to the rally, reinforcing hopes of easing tensions on the global trade front.
Tariffs, deals, and prospects of a weaker Dollar
So, what was special about this week?
Indeed, on Thursday, US trade policy resurfaced as a US federal court rejected one of Trump's favourite economic projects, preventing him from imposing wide taxes on imports from practically every nation in the globe.
In a ruling that brings into question the boundaries of presidential power, the Court of International Trade (CIT) ruled that the White House's emergency law did not provide the president with the authority to act unilaterally on trade. Instead, the New York-based court emphasised that Congress, not the president, has constitutional power to control commerce with foreign countries.
But…
Soon afterwards, a federal appeals court temporarily reinstated the most expansive of his tariffs.
The United States Court of Appeals for the Federal Circuit in Washington ordered the plaintiffs in the cases to reply by June 5 and the government by June 9, pausing the lower court's judgement to hear the government's appeal.
So, back to square one.
Returning to fundamentals, it is worth noting that even lower tariffs may have long-term detrimental impacts on the economy. While some of the first price spikes may fade, persistent trade restrictions may continue to raise costs elsewhere, limit consumer spending, and hamper overall growth. Given this context, the Federal Reserve (Fed) may need to reassess its present ’wait-and-see’ strategy if those threats materialise.
While there are still voices arguing the opposite, it is becoming obvious that the White House’s preference is for a weaker currency. Alternatively, how can we expect the Trump administration to reduce the record-high trade deficit swiftly? A plan for a ‘repatriation’ of industries has already been put in motion, although a desirable outcome needs time… and money… plenty of it.
Fed officials urge patience amid inflation uncertainty and trade policy risks
The Federal Reserve maintained interest rates constant on May 7, as anticipated, but warned of increased threats to inflation and employment in the coming months.
In its post-meeting statement, the Fed said that the economy "continued to expand at a solid pace," but attributed lower first-quarter growth to an increase in imports as firms and consumers tried to front-load purchases ahead of incoming tariffs.
Fed Chair Jerome Powell reiterated his optimistic view of the US economy and said that uncertainty remained high. In addition, he reiterated that future rate decisions will be based on economic facts.
"The outlook could include cuts or holding steady," Powell said, emphasising the Fed's more accommodating stance as trade tensions and global concerns weigh on the domestic outlook.
As the Fed weighs its next move, a chorus of voices from within the central bank is calling for caution. With inflation still above target and trade policy creating fresh uncertainty, policymakers are signalling a need to hold steady until clearer signals emerge:
Minneapolis Fed President Neel Kashkari has urged policymakers to keep interest rates steady until the inflationary effects of rising tariffs become clearer. He warned against dismissing the risks posed by supply-side price shocks, noting that sweeping tariffs introduced during President Donald Trump’s administration—and the ongoing uncertainty surrounding US trade policy—present a difficult balancing act for central banks: whether to prioritise inflation control or support economic growth.
Richmond Fed President Thomas Barkin echoed a sense of stability, saying the US economy remains on a familiar path, with low unemployment and inflation gradually approaching the Fed’s 2% goal.
Other officials stressed the importance of clear signals before making any policy adjustments. New York Fed President John Williams underscored the need for central banks to act decisively when inflation deviates from target, warning against missteps that could prove costlier than inaction.
While some policymakers are keeping the door open to rate cuts—San Francisco Fed President Mary Daly said reductions remain possible this year—others struck a more hawkish tone. Dallas Fed President Lorie Logan suggested short-term rates may need to stay elevated for a prolonged period as the Fed continues to evaluate evolving economic conditions.
What’s in store for the US Dollar?
Next week, investors' attention is anticipated to shift to US employment market announcements, with Nonfarm Payrolls for May emerging as the key event on June 6.
Other indicators to examine are the ISM indices for both the Manufacturing and Services sectors.
Speaking about techs
The US Dollar Index (DXY) is projected to maintain its negative bias while trading below its 200-day and 200-week Simple Moving Averages (SMAs) of 104.09 and 102.86, respectively.
A break above the May high of 101.97 (May 12) might pave the way for a move to the important 200-day SMA, prior to the weekly top of 104.68 (March 26).
If bears take control, the DXY might retest its 2025 bottom of 97.92 (April 21), which precedes the March 2022 floor of 97.68.
Furthermore, momentum indicators have moved their focus to a bearish trend. The Relative Strength Index (RSI) remains close to the 43 level, and the Average Directional Index (ADX) has been losing impulse and hovers near 23, supporting the notion of a moderated strength of the trend.
DXY daily chart
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
- The US Dollar Index failed to extend its bounce past 100.50.
- A US court ruling put Trump’s tariffs to the test.
- Investors shift their focus to the US labour market.
The US Dollar (USD) navigated choppy waters this week, briefly hitting new multi-day highs above the psychological 100.00 barrier, just to fade that move almost immediately and end the week in the mid-99.00s, as measured by the US Dollar Index (DXY).
The picture is even gloomier when one looks at the monthly chart, which shows the fourth consecutive month in red, shedding nearly 10% since the tariff-led peaks recorded in early February.
US trade policy has once again dominated the past few days, especially after a US court ruling that challenged the White House's trade strategy.
In the US bond market, yields traded consolidatively at the short and medium ends of the curve, while the long end declined, reaching multi-day lows.
A separate trade deal between the US and the United Kingdom (UK) had already lifted investor sentiment and given the Greenback a boost. The US-China agreement only added fuel to the rally, reinforcing hopes of easing tensions on the global trade front.
Tariffs, deals, and prospects of a weaker Dollar
So, what was special about this week?
Indeed, on Thursday, US trade policy resurfaced as a US federal court rejected one of Trump's favourite economic projects, preventing him from imposing wide taxes on imports from practically every nation in the globe.
In a ruling that brings into question the boundaries of presidential power, the Court of International Trade (CIT) ruled that the White House's emergency law did not provide the president with the authority to act unilaterally on trade. Instead, the New York-based court emphasised that Congress, not the president, has constitutional power to control commerce with foreign countries.
But…
Soon afterwards, a federal appeals court temporarily reinstated the most expansive of his tariffs.
The United States Court of Appeals for the Federal Circuit in Washington ordered the plaintiffs in the cases to reply by June 5 and the government by June 9, pausing the lower court's judgement to hear the government's appeal.
So, back to square one.
Returning to fundamentals, it is worth noting that even lower tariffs may have long-term detrimental impacts on the economy. While some of the first price spikes may fade, persistent trade restrictions may continue to raise costs elsewhere, limit consumer spending, and hamper overall growth. Given this context, the Federal Reserve (Fed) may need to reassess its present ’wait-and-see’ strategy if those threats materialise.
While there are still voices arguing the opposite, it is becoming obvious that the White House’s preference is for a weaker currency. Alternatively, how can we expect the Trump administration to reduce the record-high trade deficit swiftly? A plan for a ‘repatriation’ of industries has already been put in motion, although a desirable outcome needs time… and money… plenty of it.
Fed officials urge patience amid inflation uncertainty and trade policy risks
The Federal Reserve maintained interest rates constant on May 7, as anticipated, but warned of increased threats to inflation and employment in the coming months.
In its post-meeting statement, the Fed said that the economy "continued to expand at a solid pace," but attributed lower first-quarter growth to an increase in imports as firms and consumers tried to front-load purchases ahead of incoming tariffs.
Fed Chair Jerome Powell reiterated his optimistic view of the US economy and said that uncertainty remained high. In addition, he reiterated that future rate decisions will be based on economic facts.
"The outlook could include cuts or holding steady," Powell said, emphasising the Fed's more accommodating stance as trade tensions and global concerns weigh on the domestic outlook.
As the Fed weighs its next move, a chorus of voices from within the central bank is calling for caution. With inflation still above target and trade policy creating fresh uncertainty, policymakers are signalling a need to hold steady until clearer signals emerge:
Minneapolis Fed President Neel Kashkari has urged policymakers to keep interest rates steady until the inflationary effects of rising tariffs become clearer. He warned against dismissing the risks posed by supply-side price shocks, noting that sweeping tariffs introduced during President Donald Trump’s administration—and the ongoing uncertainty surrounding US trade policy—present a difficult balancing act for central banks: whether to prioritise inflation control or support economic growth.
Richmond Fed President Thomas Barkin echoed a sense of stability, saying the US economy remains on a familiar path, with low unemployment and inflation gradually approaching the Fed’s 2% goal.
Other officials stressed the importance of clear signals before making any policy adjustments. New York Fed President John Williams underscored the need for central banks to act decisively when inflation deviates from target, warning against missteps that could prove costlier than inaction.
While some policymakers are keeping the door open to rate cuts—San Francisco Fed President Mary Daly said reductions remain possible this year—others struck a more hawkish tone. Dallas Fed President Lorie Logan suggested short-term rates may need to stay elevated for a prolonged period as the Fed continues to evaluate evolving economic conditions.
What’s in store for the US Dollar?
Next week, investors' attention is anticipated to shift to US employment market announcements, with Nonfarm Payrolls for May emerging as the key event on June 6.
Other indicators to examine are the ISM indices for both the Manufacturing and Services sectors.
Speaking about techs
The US Dollar Index (DXY) is projected to maintain its negative bias while trading below its 200-day and 200-week Simple Moving Averages (SMAs) of 104.09 and 102.86, respectively.
A break above the May high of 101.97 (May 12) might pave the way for a move to the important 200-day SMA, prior to the weekly top of 104.68 (March 26).
If bears take control, the DXY might retest its 2025 bottom of 97.92 (April 21), which precedes the March 2022 floor of 97.68.
Furthermore, momentum indicators have moved their focus to a bearish trend. The Relative Strength Index (RSI) remains close to the 43 level, and the Average Directional Index (ADX) has been losing impulse and hovers near 23, supporting the notion of a moderated strength of the trend.
DXY daily chart
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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