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The US dollar teeters near multi-month lows, trading around 98.5, as markets await the Nonfarm Payrolls (NFP) report on June 6, 2025. Weak economic signals, escalating trade tensions, and federal job cuts paint a bearish picture for the USD. A disappointing NFP could lock in expectations of a Federal Reserve rate cut in September, pushing the dollar lower. Here’s why the USD faces significant risks and what to expect.
Economic Weakness Signals Trouble
Recent data points to a softening US economy, threatening labor market stability. May’s ADP employment report added just 37,000 private-sector jobs, missing the 114,000 forecast and marking the lowest gain since March 2023. The ISM Services PMI dropped to 49.9, signaling contraction, while weekly jobless claims hit 247,000, the highest since October 2024. Federal workforce reductions, driven by Department of Government Efficiency (DOGE) measures, saw 13,000 jobs cut in February, 4,000 in March, and 9,000 in April. With 696,309 job cuts announced this year—80% above last year’s pace—the NFP is expected to show 130,000 jobs added, down from April’s 177,000, with unemployment steady at 4.2%. A result below 100,000 could drive the US Dollar Index (DXY) toward its April low of 98.00.
Trade Tensions Fuel Uncertainty
US tariffs, including 50% duties on steel and aluminum, have reignited trade war fears, particularly with China. President Donald Trump’s April 2, 2025, tariff announcement disrupted businesses like Passenger Clothing, which halted US operations, leading to layoffs. An upcoming Trump-Xi Jinping call may clarify trade policy, but uncertainty is driving demand for safe-haven assets. Gold holds at $2,370 per ounce, silver at $34.59, and the yen and Swiss franc are gaining traction. These dynamics could exacerbate USD weakness if trade frictions persist.
NFP’s Make-or-Break Moment
The NFP will shape the USD’s path. A weak report—below 100,000 jobs with wage growth under 0.2% month-on-month—could deepen the DXY’s downtrend, reinforcing bearish sentiment. A strong report above 150,000 jobs with wages exceeding 0.4% might spark a USD rally, though gains may be capped by economic headwinds. Indicators like the ISM Services PMI Employment at 50.7 suggest modest job growth, but volatility looms. Wage trends will also sway Fed expectations, impacting USD sentiment.
The USD’s trajectory hinges on the NFP, trade developments, and economic resilience. A weak report could cement rate cut bets, boosting safe-haven assets and pressuring the dollar. Significant US-China trade progress might ease concerns, but without a strong NFP, the USD’s bearish bias will likely persist. Investors should monitor wage growth, unemployment, and trade headlines to assess this recently prevalent turbulent market landscape.
