US Dollar Index falls as markets react to NFP report
- US Dollar Index slips toward 99.50 after rejection at 100.00.
- Nonfarm Payrolls beat forecast, but revisions and context weaken momentum.
- China tariff headlines add pressure on the Greenback.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of currencies, is retreating on Friday after a brief move above the 100.00 level. Despite stronger-than-expected United States (US) Nonfarm Payrolls data, the Greenback is under pressure from dovish interpretations and emerging trade headlines involving China.
Daily digest market movers: Not what was hoped for
- The US Bureau of Labor Statistics reported that Nonfarm Payrolls rose by 177,000 in April, surpassing the 130,000 consensus but lower than the revised 185,000 in March.
- The Unemployment Rate remained at 4.2%, while the Labor Force Participation Rate rose slightly to 62.6% from 62.5% in March.
- Average Hourly Earnings, a key gauge of wage inflation, increased by 3.8% year-over-year, unchanged from the prior month.
- Downward revisions for February and March payrolls reduced the total jobs gain by 58,000, diluting the upside surprise from April.
- China is reportedly open to tariff negotiations with the Trump administration, which pressured the US Dollar as traders anticipated progress.
- The US signed a minor mineral deal with Ukraine, though it has limited economic scope and lacks any defense commitments.
- Despite the NFP beat, market participants view April’s print as the last potentially strong labor report before softness emerges in June.
- The Federal Reserve is still widely expected to cut rates in June, with traders pricing in over 100 basis points of easing by year-end.
- Earlier this week, the ADP employment report showed private sector payrolls rose by just 62,000, the weakest since July 2024.
- GDP for Q1 showed a 0.3% annualized contraction, driven by surging imports and weakening domestic demand ahead of tariffs.
Technical Analysis
The DXY is flashing an overall bearish signal, currently trading around 99.53 with a big decline on the day. The price is moving within a range of 99.40 to 100.33. The Relative Strength Index (RSI) stands at 40.14 and is neutral, while the Moving Average Convergence Divergence (MACD) is generating a mild buy signal, suggesting divergence. Both the Stochastic %K at 59.25 and the Ultimate Oscillator at 42.86 also indicate neutral momentum. The 20-day, 100-day, and 200-day Simple Moving Averages (SMAs) at 100.27, 105.45, and 104.42, respectively, along with the 10-day and 30-day Exponential Moving Averages (EMAs) at 99.70 and 101.15, are all producing bearish signals. Support is located at 99.41, while resistance levels are set at 99.70, 99.78, and 100.27.
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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