US Dollar Forecast: Bearish Setup Deepens as Treasury Yields Drop on Soft Jobs Data

Labor Market Miss Triggers Broad Dollar Selling

The U.S. Dollar Index (DXY) is under pressure Friday, trading decisively below its 50-day moving average at 98.000—now serving as fresh resistance. The index has also fallen through a key Fibonacci retracement zone between 97.859 and 98.317, reinforcing bearish sentiment. Friday’s decline has taken the DXY below a minor bottom at 97.536, opening the door for a test of the July 24 low at 97.109, with the July 1 bottom at 96.377 also back in focus.

Friday’s move was triggered by a notably weak U.S. nonfarm payrolls report, which showed just 22,000 jobs added in August—well below the Dow Jones estimate of 75,000. The unemployment rate rose to 4.3%, in line with expectations. The underwhelming release intensified selling in the greenback across all major pairs, with the DXY falling 0.59% to 97.482. The euro gained 0.7% to $1.173, the yen strengthened 0.77% to 147.34, and the Swiss franc rose 0.73% to 0.8001.

Treasury Yields Slide as Traders Reprice Fed Outlook

The bond market responded with a sharp drop in yields, led by the rate-sensitive 2-year note, which fell 10.3 basis points to 3.489%—its lowest level since April. The benchmark 10-year yield declined to 4.076%, down nearly 10 basis points on the day, while the 30-year yield slipped to 4.785%. These moves reflect growing confidence among traders that the Federal Reserve will cut interest rates at its September 17 meeting.

According to the CME FedWatch Tool, market pricing now suggests a 100% probability of a 25 basis point cut, and a 12% chance of a larger, 50 basis point move. This marks a significant shift from just a day earlier, when the odds of a super-sized cut were effectively zero. Fed expectations have been recalibrated not only by Friday’s jobs miss but also by weak ADP private payrolls data, which showed a rise of just 54,000 jobs in August.

Technical Setup and Fed Bets Suggest Deeper Dollar Decline

Technically, the DXY has lost key support levels and now faces increasing bearish momentum. With traders pricing in a more dovish Fed and Treasury yields marking multi-month lows, the dollar lacks near-term catalysts for a recovery. Unless next week’s CPI or benchmark payroll revisions offer a surprise, the path of least resistance for the dollar remains to the downside.

Near-term support is now at 97.109, with further downside risk toward 96.377 if selling intensifies. Resistance stands at 97.859 and 98.317, both now hardened by recent technical breakdowns.

More Information in our Economic Calendar.