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US Dollar fights back ahead of NFP reading

  • DXY weakens further amid rising job cuts and trade deficit concerns.
  • Challenger Job Cuts report shows layoffs surged over 100% in February.
  • ECB cuts rates by 25 basis points, revising inflation outlook upward.
  • US Jobless Claims and trade balance data highlight economic strains.

The US Dollar Index (DXY) is extending its losing streak on Thursday as fresh labor market and trade data put additional pressure on the Greenback. Job cuts surged dramatically, while weekly jobless claims showed a mixed picture of the labor market. Ahead of the Asian session, the buck got a boost and managed to clear some of its daily losses due to Federal Reserve's Fed Waller commenting that he sees 'no cuts in the next March meeting'.

Meanwhile, the European Central Bank (ECB) delivered a widely anticipated rate cut, with President Christine Lagarde emphasizing the need for heightened vigilance in uncertain economic conditions.

Daily digest market movers: US Dollar down after an additional round of soft labor data, ECB

  • The latest Challenger Job Cuts report for February revealed a sharp rise in layoffs, more than doubling compared to January.
  • Continuing Jobless Claims climbed to nearly 1.90 million, signaling challenges in the employment market despite Initial Jobless Claims dropping to 221,000.
  • The European Central Bank lowered its deposit rate by 25 basis points to 2.50 percent, aligning with market forecasts and keeping policy on a steady path.
  • The ECB raised its inflation outlook for 2025, fueling concerns that persistent price pressures could complicate future policy decisions.
  • Christine Lagarde emphasized the importance of a data-driven approach, stressing that the ECB must remain flexible in an increasingly volatile economic environment.
  • Regarding Fed expectations, the CME FedWatch Tool now shows a growing probability of a Federal Reserve rate cut in June, with expectations surpassing 85 percent.
  • Nonfarm Payrolls on Friday from February will take the center stage and the outcome of added jobs as well as wage inflation figures will set the pace of the USD.

DXY technical outlook: Bearish trend accelerates

The US Dollar Index (DXY) remains under pressure, breaking below key support levels. The 20-day and 100-day Simple Moving Averages (SMA) are nearing a bearish crossover, reinforcing negative momentum. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) continue to tilt bearish, suggesting further downside risks. If DXY fails to find support near 103.00, the next key level to watch is 102.50, which could mark the continuation of the current selloff.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Patricio Martín

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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