United States Dollar Index tumbles as NFP shock trims Fed hike bets

The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, is down 0.36%m at 99.58 following a weaker-than-expected US jobs report. The data has eased pressures on the Federal Reserve to hike rates, as inflation remains stubbornly above the Fed’s 2% goal.

DXY falls after July payrolls contracted, pushing yields lower and shifting attention to next week’s CPI

July Nonfarm Payrolls showed that the economy slashed 23K jobs from the workforce, below forecasts of 80K jobs. The figures for May and June were revised lower, with the former at 63K, down from 129K, and the latter at 20K, down from 57K. Although the report was negative, the Unemployment Rate ticked lower from 4.2% to 4.1%.

On the data, Richmond Fed Thomas Barkin said that the labor market is more low-hire, low-fire, and noted that corporate earnings “are quite strong.”

Following the data, the DXY plunged from 99.90 to 99.48, while US Treasury yields, particularly the 10-year T-note yield, fell by 3.5 basis points to 4.637%.

Fed expected to hold rates in September

Money markets trimmed expectations for a rate hike in September. The odds of a hold, reversed from around 42% to nearly 70%, while the chances of a 25-basis-point increase eased from 58% to 30%, according to Prime Terminal data.

Traders' focus shifts towards the release of the US Consumer Price Index (CPI) for July next week, on August 12. Economists project inflation to drop from 3.5% to 3.4% YoY, and Core CPI to tick lower from 2.6% to 2.5% YoY.

A day after CPI, the Producer Price Index (PPI), which is used to calculate the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index.

Next week's US economic calendar

US Dollar Index Price Forecast: Technical outlook

In the daily chart, Dollar Index Spot trades at 99.63, retaining a bearish near-term bias as it slips below the clustered simple moving averages (SMA) pack, whose latest composite reading sits near 100.57 and now acts as overhead resistance. Price is testing the rising support trend line around 99.63, highlighting a pivotal area where a daily close lower would reinforce the downside case, while the Relative Strength Index (14) at 36.19 hovers just above oversold territory, suggesting that selling pressure is still dominant but could be nearing fatigue.

On the topside, a recovery above the SMA cluster at 100.57 would be the first signal that the downside is easing, with the descending resistance trend line break level at 101.57 acting as the next barrier and capping any stronger rebound for now. On the downside, a sustained move below the rising support trend line at 99.63 would open the door for a deeper slide, while the RSI’s position near 36.19 hints that additional losses could become progressively harder to extend even as the broader technical structure remains under pressure.