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

The US Dollar Index (DXY) has declined 0.36% to 99.58 following a weaker-than-anticipated U.S. jobs report. The DXY reached 99.41 shortly after the report was released, marking its lowest level since June 15. The data has also eased expectations for the Federal Reserve (Fed) to raise interest rates, as inflation remains higher than the Fed's 2% target.

The July Nonfarm Payrolls revealed that the economy shed 23,000 jobs, falling short of the forecasted 80,000 jobs growth. The May and June figures were revised downward, with May at 63K jobs, down from 129K, and June at 20K jobs, down from 57K. Despite the negative news, the Unemployment Rate slightly decreased from 4.2% to 4.1%.

Richmond Fed Thomas Barkin pointed out that the labor market is experiencing low hiring and fewer firings, and corporate earnings are strong. In response to the data, U.S. Treasury yields, specifically the 10-year T-note yield, decreased by 3.5 basis points to 4.637%. Money markets adjusted their rate hike expectations for September, with the probability of a hold rising from about 42% to nearly 70%, and the likelihood of a 25-basis-point increase dropping from 58% to 30%, according to Prime Terminal data.

Investors are now focusing on the release of the U.S. Consumer Price Index (CPI) for July next week, expected on Wednesday. Economists forecast inflation to decrease from 3.5% to 3.4% year-over-year, while Core CPI is projected to fall from 2.6% to 2.5% year-over-year. Following CPI, the Producer Price Index (PPI), utilized to calculate the Fed's preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, will be published.

The daily chart shows the Dollar Index Spot trading at 99.63, maintaining a bearish near-term outlook as it slips below the clustered simple moving averages (SMA) cluster, now acting as overhead resistance. The price tests the rising support trend line near 99.63, highlighting a critical area where a daily close lower would reinforce the downtrend, while the Relative Strength Index (14) at 36.19 is slightly above oversold territory, indicating that selling pressure is still dominant but may be weakening.

To the upside, a recovery above the SMA cluster at 100.57 would signal easing downside, with the descending resistance trend line break level at 101.57 as the next barrier and potential ceiling for a stronger rebound for now. If the Dollar Index sustains a move below the rising support trend line at 99.63, it could lead to a deeper decline.

The RSI's position near 36.19 suggests that additional losses could become increasingly difficult to sustain, even as broader technical structure remains pressured.