- The US Dollar flat with markets puzzled what to do with the NFP release.
- The Unemployment Rate coming in strong at 4.0% is limiting chances for more Fed rate cuts than currently priced in.
- The US Dollar Index (DXY) is trying to head back to 108.00 on the back of the NFP release.
The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, trades at 107.73 in the US Nonfarm Payrolls (NFP) report aftermath. The rule of thumb is proven right again that buying the rumor and sell the fact pays off. With market expectations having been too elevated, betting on a weaker print, a knee jerk reaction takes place and avoids a drop in the DXY below 107.35.
Actual Nonfarm Payrolls data came in at 143,000, below the 170,000 consensus, compared to 256,000 in December. The estimated range was between 105,000 at the lowest estimate and 240,000 at the high end of the range. with this 143,000 print, the number came in roughly at the lower end of the range, but still in the range. Hence the rather muted repsonse and the DXY holding above 107.35.
Daily digest market movers: Expectations trashed
- The US Nonfarm Payrolls report for January came in as an outlier on market expectations:
- Nonfarm Payrolls data came in at 143,000, below the 170,000 expectation, from 256,000 in December. A staggering upbeat revision to 307,000 was applied for December
- Monthly Average Hourly Wages jumped to 0.5%, from the otherwise expected stable 0.3%.
- The Unemployment Rate fell to 4.0%, from 4.1% which was expected not to decline.
- At 14:25 GMT, Fed Governor Michelle Bowman delivers a speech on bank regulation at the 2025 Wisconsin Bankers Association Bank Executives Conference.
- At 17:00 GMT, Fed Governor Adriana Kugler speaks on "Entrepreneurship and Aggregate Productivity" at the 2025 Miami Economic Forum in Miami, Florida.
- Equities are tilted to the downside and are slightly negative after the rather positive NFP release.
- The CME FedWatch tool projects an 85.5% chance that the Fed will keep interest rates unchanged at its next meeting on March 19.
- The US 10-year yield is trading around 4.50%, recovering from its fresh yearly low at 4.40% printed on Wednesday.
US Dollar Index Technical Analysis: Putting up a fight
The US Dollar Index (DXY) is in a tough spot at the moment. The current tariff implementations from US President Donald Trump are not clearly having the same impact on the Greenback as back in March of 2018, when the first tariffs on China were implemented. Markets are instead rather looking at US yields gapping lower and US economic data starting to open room for more than two interest rate cuts from the Federal Reserve this year. If the NFP print this Friday comes in substantially softer, expect markets to price in three interest rate cuts by the Fed for 2025 and the DXY fall to 106.00.
On the upside, the first barrier at 109.30 (July 14, 2022, high and rising trendline) was briefly surpassed but did not hold on Monday. Once that level is reclaimed, the next level to hit before advancing further remains at 110.79 (September 7, 2022, high).
On the downside, the October 3, 2023, high at 107.35 is still acting as support while the Relative Strength Index (RSI) has used the rather calm last three days to catch a breather and now has more downside room to pull the DXY lower. Hence, look for 106.52 (April 16, 2024, high) or even 105.98 (resistance in June 2024 and 100-day Simple Moving Average) as better support levels.
US Dollar Index: Daily Chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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