United States Dollar Index (DXY) struggles near 99.65 and remains close to multi-week low
- DXY remains on the defensive amid US-Iran peace deal hopes and receding Fed rate-hike bets.
- A modest bounce in oil prices keeps inflation risks on the table and helps limit losses for the USD.
- Traders also seem hesitant and opt to wait for the release of the crucial US NFP report on Friday.
The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, trades with a negative bias for the third straight day and hovers around the 99.65 region during the Asian session on Thursday. The index remains close to its lowest level since June 17, touched on Monday, as traders await further developments surrounding the Middle East crisis and the key US monthly jobs data on Friday.
Iran’s Foreign Ministry spokesperson, Esmaeil Baghaei, said that Iran and Oman are close to finalizing a proposed framework for commercial shipping through the Strait of Hormuz. This adds to optimism over progress in diplomatic efforts to end a five-month-old US-Iran war, which, along with receding US Federal Reserve (Fed) rate-hike expectations, undermines the safe-haven US Dollar (USD).
The ADP report, released on Wednesday, showed that private-sector employers added 44K jobs in July, down from 98K in the previous month and significantly below consensus estimates. Adding to this, the US ISM Services PMI fell short of forecasts, coming in at 54.1 for July, up slightly from 54 in June. Nevertheless, the data cooled aggressive Fed tightening bets and keeps USD bulls on the defensive.
Meanwhile, Yemen’s Iran-backed Houthis said that they had launched a missile attack on a Saudi oil tanker off the coast of the kingdom's Red Sea port city of Yanbu and another in the Gulf of Aden, triggering a modest bounce in crude oil prices. This keeps inflation risks and Fed rate hike bets on the table, which might hold back bears from placing fresh bets on the USD and help limit any further depreciation.
Traders might also opt to wait for the release of the highly anticipated US Nonfarm Payrolls (NFP) report on Friday for fresh cues about the Fed's future policy path and determine the near-term trajectory for the DXY. Moreover, the incoming geopolitical headlines might continue to infuse volatility across the global financial markets and produce some short-term trading opportunities around the USD.
DXY daily chart
Technical Analysis:
In the daily chart, The US Dollar Index Spot trades at 99.66 retains a bearish near-term bias below the 50-day Simple Moving Average (SMA) at 100.55. The distance from this overhead SMA suggests the index is still trading in the lower band of its recent range, with prior rebounds failing to reclaim the medium-term trend marker. The said barrier would need to be reclaimed to ease immediate downside pressure.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.