Market Data 
- DXY drops over 2.5% this week as selling pressure intensifies.
- ADP employment data misses expectations, showing hiring slowdown.
- ISM Services PMI beats forecasts, signaling economic resilience.
- Technical indicators suggest further downside as key support levels break.
The US Dollar Index (DXY), which tracks the Greenback’s performance against six major currencies, is extending its decline for the third consecutive day on Wednesday. The weaker-than-expected labor market data, coupled with rising trade tensions and policy uncertainty, is pushing the US Dollar further down.
While the services sector remains robust, the market is focusing on the ADP employment shortfall, reinforcing expectations of a slowing economy. So far, the DXY has depreciated over 2.5% this week, with no immediate signs of reversal.
Daily digest market movers: US Dollar weakens amid labor concerns
- DXY plunges below key levels, marking the lowest point since November 2024.
- ADP employment report shows the US private sector added only 77K jobs, missing expectations of 140K.
- On the positive side, ISM Services PMI rises to 53.5, exceeding forecasts and showing continued economic expansion.
- That being said, inflationary pressures persist, with the Prices Paid Index climbing to 62.6 from 60.4.
- Employment Index within ISM data improves, rising to 53.9 from 52.3.
- CME FedWatch Tool indicates increased rate cut expectations for later this year and investors may start betting on 100bps of easing in 2025.
DXY technical outlook: Bearish momentum intensifies
The US Dollar Index (DXY) continues to slide, falling below both the 20-day and 100-day Simple Moving Averages (SMA), which are nearing a bearish crossover around 107.00. The completion of this pattern could reinforce further downside pressure, leaving the US Dollar vulnerable to further declines.
The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) continue pointing lower, confirming bearish momentum. With the index now at levels not seen since November 2024, a sustained break below 106.00 could open the door for a move toward 105.50 and beyond.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
