US Dollar Index sinks below 98.00 as Fed rate cut bets pick up pace
- The Greenback loses further momentum on Friday, en route to weekly losses.
- Investors have practically fully priced in a Fed rate cut later in the month.
- The US Nonfarm Payrolls added a meagre 22K jobs during the last month.
The Greenback’s decline picks up pace on Friday, sending the US Dollar Index (DXY) to the area of multi-week lows near 97.50, reversing at the same time the previous week’s small advance.
Rate cut bets increase further
The US Dollar rapidly leaves behind Thursday’s uptick and refocuses on the downside as investors now appear more convinced that the Federal Reserve (Fed) will trim its interest rates at the September 16-17 meeting.
Indeed, traders’ bets for further easing by the Fed were boosted after US Nonfarm Payrolls showed the economy added just 22K jobs last month, coming in short of forecasts (75K jobs) and lower than July’s 79K jobs gain.
Additional data supporting the above scenario comes from the jobless rate, which edged higher to 4.3%, accentuating the loss of momentum in the US labour market.
In the meantime, implied rates now see 70 basis points of easing pencilled in by year-end and around 153 basis points by the end of 2026.
Technical landscape
Next on the downside for DXY emerges its weekly low of 97.10 (July 24), seconded by the 2025 bottom at 96.37 (July 1) and the February 2022 valley at 95.13 (February 2).
On the upside, the immediate hurdle comes at the August high at 100.26 prior to the weekly top at 100.54 (May 29) and the May ceiling at 101.97 (May 12).
Momentum signals remain mixed: The Relative Strength Index (RSI) has cooled to about 44, showing fading bullish energy, while the Average Directional Index (ADX) is sitting near 11, a level that signals the market lacks a strong trend.
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.
Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
