US Dollar Weekly Forecast: Attention shifts to the labour market and Fedspeak
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UPGRADE- The US Dollar closed its second consecutive week of gains.
- Implied rates see nearly 40 basis points of easing by December.
- All the attention will now shift to September’s Nonfarm Payrolls.
The week that was
This week, the US Dollar (USD) managed to lend further legs to its rebound from multi-week troughs recorded earlier in the month, leading the US Dollar Index (DXY) to surpass the key 98.00 barrier with certain strength, briefly flirting at the same time with monthly peaks around the 98.60 region.
The improved sentiment surrounding the Greenback came in response to unexpectedly firmer results from key US fundamentals, namely the weekly labour market report and the final Q2 GDP readings, which were revised markedly higher.
Mirroring the buck, Treasury yields told the same story, adding to the recent advance across various time frames.
The Fed’s risk management
The Federal Reserve (Fed) trimmed rates by a quarter point last week, citing slower job growth and mounting risks to employment, even as inflation stays “somewhat elevated”. Policymakers’ projections suggest another half-point of cuts is likely before year-end, with smaller moves pencilled in further out in 2026 and 2027. For next year, the median rate forecast was nudged down to 3.6%, while growth was marked a touch higher at 1.6%. Unemployment and inflation forecasts were left unchanged at 4.5% and around the target, respectively.
The decision wasn’t unanimous. New governor Stephen Miran wanted to go bigger with a half-point cut, underscoring the split on how fast the Fed should move.
At his press conference, Chair Jerome Powell sounded careful and deliberate. He pointed out that hiring has slowed, consumers are spending more cautiously, and inflation is running at 2.7% on headline PCE and 2.9% on core. Tariffs are pinching goods prices, he noted, but services inflation is continuing to ease. Powell stressed that risks are now looking more balanced, the Fed is edging closer to neutral, and there’s little appetite for a sharper move.
Markets are reading the tea leaves as two more cuts — one in October, another in December. Futures are priced around 40 basis points of easing by year-end and just under a full percentage point by the end of 2026.
Fed officials do not rule out extra rate cuts, but…
Fed officials delivered a mix of signals this week as they debated how best to balance the risks of stubborn inflation against signs of a cooling labour market.
Chicago Fed President Austan Goolsbee suggested that the Fed could find room to lower rates if inflation continues to ease, hinting at scope for more accommodative policy should price pressures subside. But later in the week he was more cautious, saying last week’s cut was appropriate given evidence of a softer job market, while also warning against aggressive easing while inflation remains above target.
Other policymakers leaned more toward labour market concerns. Vice Chair for Supervision Michelle Bowman argued the Fed may already be lagging in supporting employment, urging the FOMC to act “decisively and proactively” to prevent emerging fragilities. Kansas City Fed President Jeffrey Schmid also said the recent cut was needed to steady the labour market, though he noted the broader economy remains close to the Fed’s goals.
Not all agreed. Atlanta Fed President Raphael Bostic stressed that price pressure remains “very much alive,” citing reports from business leaders struggling to absorb higher costs. Fed Governor Stephen Miran went further in the opposite direction, contending that the Fed has held rates too high out of misplaced inflation fears. He called for as much as two percentage points of additional easing, delivered in half-point increments, to reduce the economy’s vulnerability to shocks.
Chair Jerome Powell struck a more cautious middle ground. In remarks to the Greater Providence Chamber of Commerce, he described the policy outlook as a “challenging situation”, warning of risks on both sides: cutting too quickly could reignite inflation, but moving too slowly could worsen job losses.
Rounding out the week, Richmond Fed President Thomas Barkin said he saw limited risks of either runaway inflation or surging unemployment, which in his view gives the Fed room to balance its dual mandate. Still, he cited evidence from firms in his district that suggested the labour market may be starting to wobble.
Tariffs: The wild card in global trade
Trade tensions have eased a notch after Washington and Beijing agreed to keep their truce going for another 90 days. President Trump held off on a planned tariff hike until 10 November, and China decided not to hit back this time. Still, the tariff load isn’t light: US imports from China are facing a 30% duty, while American goods heading the other way carry a 10% tax.
Across the Atlantic, Washington also shook hands on a new deal with Brussels. The EU agreed to trim tariffs on US industrial goods and open its doors wider to American farm and seafood products. In exchange, the US slapped a 15% tax on most European imports. The big question mark is cars, with EU rules still up in the air, auto tariffs could yet become the next flashpoint.
Trump also unveiled a fresh wave of tariffs aimed squarely at industry. From 1 October, branded or patented drug imports will face a 100% levy unless the company is building a factory in the US. Washington will tack on a 25% import tax on heavy-duty trucks and slap 50% levies on kitchen and bathroom cabinets. The message is clear: if companies want to avoid tariffs, they’ll need to invest at home.
Step back, and the bigger picture is clear: tariffs are still the joker in the pack. They may serve up short-term political wins, but the longer they hang around, the more they risk raising household bills and slowing growth. Some in Trump’s circle don’t mind a softer US Dollar to give exporters a leg up, but bringing manufacturing back home is a long, costly process, and tariffs alone won’t do the trick.
What’s Next for the Dollar?
All eyes next week will be on the US labour market — especially after Powell made jobs the centrepiece of his FOMC remarks. Fresh reads on business activity in both manufacturing and services will also be key, alongside a heavy line-up of Fed speakers.
Technical outlook: Bears still in control
The charts aren’t offering much comfort for US Dollar bulls.
If the DXY breaks below its 2025 valley at 96.21 (September 17), the next checkpoints sit at the February 2022 base of 95.13 (February 4) and the 2022 bottom at 94.62 (January 14).
On the other hand, the August high, at 100.26 (August 1), is the first big hurdle. Clearing it would put the May weekly peak at 100.54 (May 29) and the May ceiling at 101.97 (May 12) back on the radar. For now, the index remains capped below both the 200-day SMA (101.73) and the 200-week SMA (103.22), keeping the broader bias tilted lower.
Momentum indicators appear a tad constructive: the Relative Strength Index (RSI) hovers around 54, showing swelling bullish energy, while the Average Directional Index (ADX) near 14 signals a market without colour.
US Dollar Index daily chart
Bottom line
US Dollar weakness goes deeper than soft data. Political pressure on the Fed, the prospect of more rate cuts, tariff risks, and ballooning government debt are all weighing on sentiment. Even when the Greenback bounces, those gains have been hard to hold.
Most strategists still lean bearish, though with shorts already crowded, much of the downside story may be priced in. That could make the next leg lower a bit slower and choppier rather than a straight slide.
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 closed its second consecutive week of gains.
- Implied rates see nearly 40 basis points of easing by December.
- All the attention will now shift to September’s Nonfarm Payrolls.
The week that was
This week, the US Dollar (USD) managed to lend further legs to its rebound from multi-week troughs recorded earlier in the month, leading the US Dollar Index (DXY) to surpass the key 98.00 barrier with certain strength, briefly flirting at the same time with monthly peaks around the 98.60 region.
The improved sentiment surrounding the Greenback came in response to unexpectedly firmer results from key US fundamentals, namely the weekly labour market report and the final Q2 GDP readings, which were revised markedly higher.
Mirroring the buck, Treasury yields told the same story, adding to the recent advance across various time frames.
The Fed’s risk management
The Federal Reserve (Fed) trimmed rates by a quarter point last week, citing slower job growth and mounting risks to employment, even as inflation stays “somewhat elevated”. Policymakers’ projections suggest another half-point of cuts is likely before year-end, with smaller moves pencilled in further out in 2026 and 2027. For next year, the median rate forecast was nudged down to 3.6%, while growth was marked a touch higher at 1.6%. Unemployment and inflation forecasts were left unchanged at 4.5% and around the target, respectively.
The decision wasn’t unanimous. New governor Stephen Miran wanted to go bigger with a half-point cut, underscoring the split on how fast the Fed should move.
At his press conference, Chair Jerome Powell sounded careful and deliberate. He pointed out that hiring has slowed, consumers are spending more cautiously, and inflation is running at 2.7% on headline PCE and 2.9% on core. Tariffs are pinching goods prices, he noted, but services inflation is continuing to ease. Powell stressed that risks are now looking more balanced, the Fed is edging closer to neutral, and there’s little appetite for a sharper move.
Markets are reading the tea leaves as two more cuts — one in October, another in December. Futures are priced around 40 basis points of easing by year-end and just under a full percentage point by the end of 2026.
Fed officials do not rule out extra rate cuts, but…
Fed officials delivered a mix of signals this week as they debated how best to balance the risks of stubborn inflation against signs of a cooling labour market.
Chicago Fed President Austan Goolsbee suggested that the Fed could find room to lower rates if inflation continues to ease, hinting at scope for more accommodative policy should price pressures subside. But later in the week he was more cautious, saying last week’s cut was appropriate given evidence of a softer job market, while also warning against aggressive easing while inflation remains above target.
Other policymakers leaned more toward labour market concerns. Vice Chair for Supervision Michelle Bowman argued the Fed may already be lagging in supporting employment, urging the FOMC to act “decisively and proactively” to prevent emerging fragilities. Kansas City Fed President Jeffrey Schmid also said the recent cut was needed to steady the labour market, though he noted the broader economy remains close to the Fed’s goals.
Not all agreed. Atlanta Fed President Raphael Bostic stressed that price pressure remains “very much alive,” citing reports from business leaders struggling to absorb higher costs. Fed Governor Stephen Miran went further in the opposite direction, contending that the Fed has held rates too high out of misplaced inflation fears. He called for as much as two percentage points of additional easing, delivered in half-point increments, to reduce the economy’s vulnerability to shocks.
Chair Jerome Powell struck a more cautious middle ground. In remarks to the Greater Providence Chamber of Commerce, he described the policy outlook as a “challenging situation”, warning of risks on both sides: cutting too quickly could reignite inflation, but moving too slowly could worsen job losses.
Rounding out the week, Richmond Fed President Thomas Barkin said he saw limited risks of either runaway inflation or surging unemployment, which in his view gives the Fed room to balance its dual mandate. Still, he cited evidence from firms in his district that suggested the labour market may be starting to wobble.
Tariffs: The wild card in global trade
Trade tensions have eased a notch after Washington and Beijing agreed to keep their truce going for another 90 days. President Trump held off on a planned tariff hike until 10 November, and China decided not to hit back this time. Still, the tariff load isn’t light: US imports from China are facing a 30% duty, while American goods heading the other way carry a 10% tax.
Across the Atlantic, Washington also shook hands on a new deal with Brussels. The EU agreed to trim tariffs on US industrial goods and open its doors wider to American farm and seafood products. In exchange, the US slapped a 15% tax on most European imports. The big question mark is cars, with EU rules still up in the air, auto tariffs could yet become the next flashpoint.
Trump also unveiled a fresh wave of tariffs aimed squarely at industry. From 1 October, branded or patented drug imports will face a 100% levy unless the company is building a factory in the US. Washington will tack on a 25% import tax on heavy-duty trucks and slap 50% levies on kitchen and bathroom cabinets. The message is clear: if companies want to avoid tariffs, they’ll need to invest at home.
Step back, and the bigger picture is clear: tariffs are still the joker in the pack. They may serve up short-term political wins, but the longer they hang around, the more they risk raising household bills and slowing growth. Some in Trump’s circle don’t mind a softer US Dollar to give exporters a leg up, but bringing manufacturing back home is a long, costly process, and tariffs alone won’t do the trick.
What’s Next for the Dollar?
All eyes next week will be on the US labour market — especially after Powell made jobs the centrepiece of his FOMC remarks. Fresh reads on business activity in both manufacturing and services will also be key, alongside a heavy line-up of Fed speakers.
Technical outlook: Bears still in control
The charts aren’t offering much comfort for US Dollar bulls.
If the DXY breaks below its 2025 valley at 96.21 (September 17), the next checkpoints sit at the February 2022 base of 95.13 (February 4) and the 2022 bottom at 94.62 (January 14).
On the other hand, the August high, at 100.26 (August 1), is the first big hurdle. Clearing it would put the May weekly peak at 100.54 (May 29) and the May ceiling at 101.97 (May 12) back on the radar. For now, the index remains capped below both the 200-day SMA (101.73) and the 200-week SMA (103.22), keeping the broader bias tilted lower.
Momentum indicators appear a tad constructive: the Relative Strength Index (RSI) hovers around 54, showing swelling bullish energy, while the Average Directional Index (ADX) near 14 signals a market without colour.
US Dollar Index daily chart
Bottom line
US Dollar weakness goes deeper than soft data. Political pressure on the Fed, the prospect of more rate cuts, tariff risks, and ballooning government debt are all weighing on sentiment. Even when the Greenback bounces, those gains have been hard to hold.
Most strategists still lean bearish, though with shorts already crowded, much of the downside story may be priced in. That could make the next leg lower a bit slower and choppier rather than a straight slide.
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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