US Dollar (DXY): Weakens as Job Growth Falls Short, But Fed Set to Raise Rates

Highlights

• Dollar falls on weak job growth.
• Nonfarm payrolls increase by 209,000, below economists’ forecast.
• Fed likely to proceed with rate hikes due to strong labor market indicators.

Overview

The U.S. dollar fell on Friday following lower-than-expected job growth data, although the figures were still strong enough to support the Federal Reserve’s plan to raise interest rates later this month. The dollar index dropped 0.213% to 102.860.

According to the Labor Department, nonfarm payrolls increased by 209,000 jobs in June, falling short of the economists’ forecast of 225,000. Despite the slightly weaker payrolls increase, Treasury yields continued to rise as traders maintained their bets on more rate hikes by the Federal Reserve. However, the unemployment rate met expectations by declining to 3.6% from May’s 3.7%.

June Jobs Report Supports Rate Hikes

The June jobs report showed mixed signals of inflation, providing support for the Fed to proceed with rate hikes. Wages increased by 4.4% on an annual basis, slightly exceeding estimates. Alongside the decline in the unemployment rate, these factors indicate the ongoing strength of the labor market. Traders remained confident in the likelihood of a rate hike in July, with Fed futures indicating a 92% chance of a quarter-point increase on July 26.

Analysts Expect Fed to Maintain Rate Hike Path

Market analysts expect the Fed to maintain its rate hike trajectory, primarily due to the robustness of the labor market. Moreover, the upcoming policy meetings provide additional opportunities for the central bank to fine-tune interest rates, with the next meeting scheduled for later in July. Although there is widespread anticipation of a rate increase for July, the lingering uncertainty regarding the outlook for the remainder of the year remains a prominent concern. Emphasizing the importance of a strong labor market, Fed Chairman Jerome Powell underscored how it influences the central bank’s approach to monetary policy.

Losses Could Be Limited

Notwithstanding the lower-than-expected job growth, ultimately, the Federal Reserve is still expected to proceed with its plan to raise interest rates in July. The labor market’s strength, as indicated by wage growth and the decline in the unemployment rate, supports the Fed’s decision. Traders are confident about a rate hike. They anticipate more adjustments throughout the year. These adjustments are driven by the central bank’s focus on the performance of the labor market

Technical Analysis

The US Dollar (DXY) market shows bearish sentiment based on the analysis. The current price is below the previous close, 200-4H moving average, and 50-4H moving average, indicating a downward trend. The 14-4H RSI reading suggests a slightly oversold condition.

The main support area is between 101.930 and 102.113, while the main resistance area ranges from 103.280 to 103.424. As the price remains below the main resistance area, analysts expect the market to sustain its bearish momentum. Traders should anticipate further downside potential for the US Dollar (DXY) in the near term.