United States Dollar Index holds steady near 100.00 as bulls await US NFP amid Iran risks

DXY preserves the previous day’s modest gains amid persistent geopolitical uncertainties.
Recovering oil prices fuel inflation fears and lift Fed hike bets, further supporting the USD.
Bulls seem hesitant and keenly await the release of the crucial US NFP report later today.

Haresh Menghani FXStreet

The United States Dollar Index (DXY), which tracks the Greenback against a basket of currencies, consolidates during the Asian session on Friday as traders keenly await the release of the closely-watched US monthly jobs data. In the meantime, persistent geopolitical uncertainties and bets for at least one rate hike by the US Federal Reserve (Fed) hold the index steady around the 100.00 psychological mark.

In the latest developments surrounding the Middle East crisis, a Saudi official said that some Iraqi militia factions, in coordination with Yemen's Iran-backed Houthis, are planning to attack the kingdom in the very near future. This raises the risk of a wider regional conflict and prompts traders to again price in the geopolitical risk premium, which, in turn, is seen as a key factor acting as a tailwind for the safe-haven US Dollar (USD).

Meanwhile, Houthis claimed responsibility for an attack on a Saudi oil tanker in the Gulf of Aden. Moreover, reports suggested that Iran is reviewing a plan ‌that would ban US and Israeli vessels from the Strait of Hormuz. The latest developments led to the overnight rise in oil prices, reviving inflation fears and fueling hawkish Fed expectations. This remains supportive of elevated US bond yields and further underpins the USD.

Bullish traders, however, seem hesitant to place aggressive bets and look to the crucial US Nonfarm Payrolls (NFP) report for more cues about the Fed's policy path. The outlook, along with headlines surrounding the Middle East crisis, will play a key role in influencing the USD. Nevertheless, the DXY seems poised to register modest weekly gains, though a break above the weekly range is needed to back the case for further gains.

DXY daily chart

Technical Analysis

The DXY holds above the 100-day Simple Moving Average (SMA) at 99.74, keeping a mildly bullish near-term tone as price respects this dynamic floor after recovering from the recent sub-99.80 lows. A close above this moving average would keep the path open for further recovery, while a decisive break below 99.74 would hint at a deeper corrective phase.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Nonfarm Payrolls FAQs

What are Nonfarm Payrolls?

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.

How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?

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.

How does Nonfarm Payrolls affect the US Dollar?

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.

How does Nonfarm Payrolls affect Gold?

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.

Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?

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.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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