US Dollar Index (DXY) steadies above 98.00 as Iran’s ceasefire wobbles

The US Dollar Index bounced up from the 97.80 area and returns to 98.20 on Friday.
The escalation of tensions in the Strait of Hormuz has brought safe-haven trade back.
Later on the day, the US Nonfarm payrolls report will provide fundamental guidance for the USD.

Guillermo Alcala FXStreet

The US Dollar (USD) pares losses against its main peers on Friday, as hopes for a swift end to the war in Iran fade again, following an exchange of fire in the Strait of Hormuz. The US Dollar Index (DXY), which measures the value of the Dollar against a basket of peers, has bounced up to the 98.20 area from 97.80 lows on Thursday, turning positive on weekly charts.

Iran’s top military commander affirmed that the US had targeted an Iranian Oil tanker and carried out attacks on civilian areas in Southern Iran, while the US said that they had responded to attacks on their naval forces from Iranian missiles, drones, and fast boats.

US President Donald Trump affirmed that Iran had been “trifling” with the US but maintained that the ceasefire holds and urged Tehran, once again, to close a deal. Iranian authorities, meanwhile, are reviewing a 14-point peace plan submitted by the US to put an end to the war.

With geopolitical tensions at the forefront, investors will also keep an eye on the US Nonfarm Payrolls (NFP) report from April, due later on Friday. The market consensus hints at a significant slowdown in job creation, but ADP Employment Change figures released earlier in the week delivered a positive surprise. If the NFP follows suit, it will ease pressure on the Federal Reserve to lower interest rates and provide additional support for the Greenback.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Economic Indicator

Unemployment Rate

The Unemployment Rate, released by the US Bureau of Labor Statistics (BLS), is the percentage of the total civilian labor force that is not in paid employment but is actively seeking employment. The rate is usually higher in recessionary economies compared to economies that are growing. Generally, a decrease in the Unemployment Rate is seen as bullish for the US Dollar (USD), while an increase is seen as bearish. That said, the number by itself usually can't determine the direction of the next market move, as this will also depend on the headline Nonfarm Payroll reading, and the other data in the BLS report.

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