US Dollar (DXY): Higher as Odds of May Fed Rate Hike Rise After Solid US Jobs Report

Highlights

• US non-farm payrolls boosts likelihood of another Federal Reserve rate hike
• US Treasury yields expected to rise, underpinning US Dollar
• Traders anticipate Consumer Price Index impact on Fed’s policy decisions

Overview

The US Dollar is trading higher against a basket of major currencies as traders react to Friday’s US non-farm payrolls report, which indicates a tight labor market, increasing the likelihood of another rate hike by the Federal Reserve at its May policy meeting.

At 02:28 GMT, June U.S. Dollar Index Futures are trading 101.875, up 0.145 or +0.14%. Last Thursday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.73, up $0.01 or +0.04%.

US Jobs Report Points to Tight Labor Market, Treasury Yields Expected to Firm Monday

Friday’s U.S. jobs report showed that the US added 236,000 jobs in March, close to the consensus estimate of 239,000, with the unemployment rate falling to 3.5%. Average hourly earnings also increased by 4.2% on a 12-month basis, the lowest level since June 2021.

Traders are expecting Treasury yields to rise after jumping on Friday in reaction to the report, which could underpin the US Dollar, making US bonds more attractive to foreign investors. According to the CME FedWatch tool, there is a 66.3% chance of the Federal Reserve hiking interest rates by a quarter of a percentage point in May.

The European Central Bank is uncertain whether a rates rise of 50 basis points is necessary in May or if a scale back to a lower 25 basis points is possible, according to a top ECB official. This could provide further support for the U.S. Dollar Index.

March CPI Report to Impact Fed Policy Decisions

Traders are also anticipating the release of the Consumer Price Index (CPI) for March, which is expected to have a significant impact on the Federal Reserve’s policy decisions. If consumer prices rise despite the Fed’s recent aggressive rate hikes, investors could price interest rates closer to where the Fed is, which could put pressure on riskier asset prices.

The June US Dollar Index futures market may be limited on Monday and Tuesday. Europe and the UK are on Easter holiday on Monday, which could contribute to the limited trade.

Daily June US Dollar Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is edging higher following the April 5 closing price reversal bottom.

A trade through 102.745 will change the main trend to up. A move through 101.090 will signal a resumption of the downtrend.

The minor range is 102.745 to 101.090. Its pivot at 101.918 is currently being tested. The main range is 100.345 to 105.490. Its retracement zone at 102.310 – 102.918 is the next resistance zone.

Daily June US Dollar Technical Forecast

Trader reaction to the minor pivot at 101.918 is likely to determine the direction of the June US Dollar Index early Monday.

Bullish Scenario

A sustained move over 101.918 will indicate the presence of buyers. This could trigger a surge into the main Fibonacci level at 102.310.

Bearish Scenario

A sustained move under 101.918 will signal the presence of sellers. The first downside target is a minor pivot at 101.537, followed by the main bottom at 101.090.