- The US dollar strengthened after Friday’s NFP printing.
- U.S. job additions rose sharply in September, after revising upwards from previous months.
- Market hopes for another significant interest rate cut in November were dashed by job growth.
The U.S. dollar (USD) index (DXY) posted a fifth straight day of gains on Friday, driven by better-than-expected U.S. nonfarm payrolls data. The company showing growth in U.S. employment and a decline in the U.S. unemployment rate dampened market expectations for another double cut in interest rates by the Federal Reserve (Fed) in November.
The U.S. unemployment rate fell again to 4.1% from the previous 4.2%, further underscoring the healthier-than-expected U.S. labor market. Moreover, several months of NFP publications recorded a significant upward correction. The previous NFP total for August was increased by an additional 17,000, while the July figure skyrocketed by 55,000, taking the total to 144,000.
Annual wage growth also strengthened in September, reaching 4.0% y/y from the previous 3.9%. Investors expected growth in average hourly earnings to decline back to 3.8% in September. With wages and net job gains far exceeding all expectations, the interest rate market’s expectations for a faster pace of rate cuts were a resounding success, ending a trading week that was mediocre at best.
According to CME’s FedWatch Tool, investor expectations for the Fed’s November call dropped sharply after the introduction of NFP; Interest rate futures speculators currently see a 95% chance that the Fed will cut interest rates by a modest 25 basis points on November 7, with the final 5% betting on no change in the Fed funds rate.
US Dollar Price Forecast
The Dollar Index (DXY) has been forceful lately, breaking essential levels and moving above 102.00. It tested the 50-day exponential moving average (EMA) at 101.90, which could be a significant barrier.
The recent price movement suggests a possible short-term rebound from the previous downtrend. The next major resistance is the 200-day EMA around 103.41. If the index breaks above this level, it may confirm a change in the overall trend.
Since bottoming in September, the index has been hitting higher lows, showing a shift in market sentiment in favor of the dollar. If this situation continues, DXY could target the 103.50-104.00 range, with the 200-day EMA being the main obstacle.
If it fails to break the 50-day EMA, the index could consolidate or move down to around 101.00, with more support at 100.50.
The dollar index appears to be recovering, with the 50-day and 200-day EMAs being significant barriers. A break above 103.50 could mean a longer period of growth, while not doing so could result in a return to around 101.00.
DXY daily chart
Economic indicator
Non-agricultural wages
The Nonfarm Payrolls publication presents the number of recent jobs created in the U.S. during the previous month across all nonfarm businesses; is published by US Bureau of Labor Statistics (BLS). Monthly payroll changes can be extremely volatile. This number is also subject to forceful reviews, which can also create volatility in the Forex market. Generally, 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 essential as the headline data. The market reaction therefore depends on how the market evaluates all the data contained in the BLS report.
