US Dollar Faces Pressure After Soft NFPs in July

The US Dollar (USD) encountered significant selling pressure following the release of the July jobs report. The disappointing NFP figures triggered concerns about the health of the US economy and raised expectations of a rate cut by the Federal Reserve (Fed) in September. Let’s delve into the details:

NFP Growth Falls Short

In July, US Nonfarm Payrolls (NFP) grew by a mere 114,000 jobs, well below market expectations of 175,000. This figure also marked a significant decline from June’s downwardly revised growth of 179,000 (originally reported as 206,000).

Unemployment Rate Edges Up: The Unemployment Rate inched up to 4.3% in July, compared to 4.1% in June. This slight increase reflects a weakening labor market.

Wage Inflation Moderates

Average Hourly Earnings’ annual wage inflation decreased from 3.8% to 3.6% in July. This suggests subdued demand for labor and contributes to the overall bearish sentiment toward the USD.
Fed Rate Cut Expectations

The CME FedWatch Tool now indicates a 90% probability of a half-point rate cut by the Fed in September. The central bank appears ready to respond to signs of economic weakness.

Technical Outlook for the DXY Index

The DXY index, which measures the USD against a basket of major currencies, has turned bearish. It slid significantly below both the 20-day and 200-day Simple Moving Averages (SMAs), signaling potential further downside. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) also reflect increased selling pressure.

The soft NFPs in July have cast a shadow over the US Dollar. As traders anticipate a rate cut, the DXY index faces support levels at 103.00, 102.50, and 102.30, with resistance at 103.50 and 104.00. Investors will closely monitor economic data and Fed signals in the coming weeks to gauge the currency’s trajectory.