US Dollar Index remains below 98.00 as revised NFP data reinforce odds of Fed rate cuts
- US Dollar Index weakened as disappointing revised job growth figures fueled rising Fed rate cut expectations.
- US Nonfarm employment for March 2025 for March 2025 will likely be revised down by 911,000.
- CME FedWatch tool suggests a pricing of more than 93% of a 25-basis-point Fed rate cut in September.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is treading water below 98.00 during the Asian hours on Wednesday. The Greenback is poised to struggle as traders widely expect a rate cut by the US Federal Reserve (Fed) in September, driven by the disappointing revised US job growth figures.
The US Bureau of Labor Statistics (BLS) reported that the economy likely created 911,000 fewer jobs in the 12 months through March than previously estimated, signaling a weaker labor market than previously estimated. The final benchmark revision will be issued in February 2026 with the publication of the January 2026 Employment Situation news release.
The CME FedWatch tool indicates a pricing in more than 93% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from 86% a week ago. Focus shifts toward US inflation reports that could provide more cues on Fed policy outlook. The August US Producer Price Index (PPI) is scheduled for release on Wednesday, followed by the Consumer Price Index (CPI) on Thursday.
On Fed independence, a federal judge temporarily blocked US President Donald Trump from firing Fed Governor Lisa Cook. The order came nearly two weeks after Cook sued Trump to prevent him from removing her from the US central bank.
President Donald Trump has urged the European Union (EU) to impose 100% tariffs on Chinese and Indian goods in an effort to pressure Russian President Vladimir Putin. Washington said the Trump administration is ready to “mirror” any EU-imposed tariffs, indicating the US could raise duties on Indian and Chinese imports to a comparable level.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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