US Dollar Index consolidates above 98.50 amid mixed US PMI signals

• The US Dollar Index steadies above 98.50 after a modest rebound from Friday’s post-NFP slide.
• S&P Global Composite and Services PMIs beat forecasts, signaling continued resilience in the private sector.
• ISM Services PMI drops to 50.1, missing expectations and highlighting signs of cooling demand and hiring.

The US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, is holding steady above the 98.50 mark, showing limited movement after Friday’s sharp drop. Despite last week’s setback, the DXY posted modest gains on Monday and is inching higher on Tuesday, last seen around 98.96, as market focus turned to fresh US Purchasing Managers Index (PMI) data released earlier in the session.

The data painted a mixed picture of the US services sector. The S&P Global Services PMI for July came in at 55.7, slightly beating expectations of 55.2, while the Composite PMI rose to 55.1 from 54.6, signaling continued resilience in private sector activity. However, the ISM Services PMI disappointed, easing to 50.1 versus forecasts of 51.5, as new orders and employment components both softened. The Employment Index dropped to 46.4 from 47.2, signaling ongoing weakness in services hiring, while the New Orders Index fell to 50.3 from 51.3. Notably, the Prices Paid Index surged to 69.9, up sharply from 67.5, suggesting that cost pressures remain elevated despite slowing activity.

The index remains in consolidation mode after pulling back from a two-month high near 100.26, driven by a softer-than-expected US Nonfarm Payrolls (NFP) report that has all but cemented expectations that the Federal Reserve (Fed) will lower the interest rates at its next monetary policy meeting in September. While the index briefly regained ground last week on trade optimism, it reversed sharply lower after the NFP report showed the economy added just 73,000, well below the consensus of over 110,000. Adding to the downside, job figures for May and June were revised down by a combined 258,000, deepening concerns about the labor market's momentum.

In response, traders have significantly raised their expectations for a rate cut, with Fed funds futures now pricing in a 92% chance of a 25 basis point reduction at the Fed’s next policy meeting.

Meanwhile, traders are closely watching global trade developments, which could stir fresh volatility across markets. Last week, US President Donald Trump signed a broad executive order imposing new reciprocal tariffs ranging from 10% to 41% on imports from nearly 70 countries. Among those most affected are India, Canada, Switzerland, Taiwan, and Brazil. Although the initial deadline was set for August 1, the order states that the tariffs will generally take effect starting August 7. Adding to the uncertainty, US-China trade talks have yet to yield a breakthrough, with the August 12 truce deadline fast approaching. Market participants remain cautious, as any extension of the deadline appears to rest solely on President Trump’s decision.

Adding another layer of concern for markets, sentiment remains fragile amid growing political interference in US economic institutions. In a controversial move, President Trump last week dismissed Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer following the release of the disappointing July jobs report. Investors fear that such interference could erode confidence in future economic data and distort monetary policy expectations.

Against this backdrop, the near-term outlook for the US Dollar remains bearish, weighed down by soft labor data, growing expectations of a Fed rate cut, and lingering geopolitical uncertainty. Looking ahead, markets will be closely watching upcoming comments from Federal Reserve officials later this week, which could provide more clarity on the central bank’s policy path heading into the September meeting.