United States Dollar Index strengthens above 99.00 as robust US jobs data boosts Fed rate hike bets
- US Dollar Index gains ground to around 99.20 in Monday’s early Asian session.
- The US August NFP data came in stronger than expected, boosting Fed hike expectations.
- Traders await the US PPI and CPI inflation data later this week for fresh impetus.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, currently trades near 99.20 in the early Asian trading hours on Monday. The DXY edges higher amid a ramp-up in US rate hike bets. US markets are closed on Monday for Labour Day.
Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that Nonfarm Payrolls (NFP) climbed by 162K in August, versus an upwardly revised rise of 21K prior. This figure came in above the market consensus of 56K. The Unemployment Rate in the US held steady at 4.1% during the same period.
Traders moved to price in a roughly 58.3% probability that the Federal Reserve (Fed) will hike rates this month following the stronger US jobs data, according to the CME FedWatch tool.
The US Producer Price Index (PPI) and Consumer Price Index (CPI) inflation data will be the highlights later this week. These reports could offer further clues on the Fed's policy path.
"A hot CPI print would all but seal a September hike and underpin a firmer U.S. dollar. A cooler reading would strengthen the case for a hold and leave the U.S. dollar vulnerable to a dovish Fed repricing," said Elias Haddad, global head of markets strategy at BBH.
Dollar firms as strong US payrolls lift yields
According to TD Securities, the latest US labour market data have provided a clear near-term boost to the currency and rates complex, with the bank noting that "a strong payrolls report has pushed US yields and the Dollar higher."
Technical Analysis: US Dollar Index remains capped under the 100-day SMA
In the daily chart, Dollar Index Spot keeps a modest bearish tone as price slips under the Bollinger middle band while holding above the 100-day simple moving average (SMA). The index is now positioned in the lower half of its recent Bollinger envelope, and the Relative Strength Index (14) near 43 hints at waning upside momentum rather than outright oversold conditions, suggesting rallies could be sold while the broader structure remains capped.
On the topside, initial resistance emerges at the Bollinger middle band around 99.35, with a stronger cap at the upper band near 100.10 if buyers attempt a deeper squeeze. On the downside, the 100-day SMA at 99.75 remains a key medium-term support reference, while the Bollinger lower band near 98.60 acts as the next downside objective if sellers extend the current pullback.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.