US Dollar Forecast: DXY Falls as Layoff Surge Fuels Fed Rate Cut Bets

Labor Market Weakness Drags Down Dollar and Yields

The U.S. Dollar Index (DXY) declined on Thursday, extending its pullback below the 200-day moving average after a failed breakout attempt at 100.360 earlier in the week. The index slipped 0.3% to 99.753, with risk sentiment turning cautious following a surge in layoff announcements and broad declines in Treasury yields.

A report from Challenger, Gray & Christmas showed 153,074 job cuts in October—up 183% from September and the highest October figure since 2003. The data intensified concerns about U.S. economic resilience and increased the likelihood of monetary easing before year-end.

Bond Market Reacts Sharply to Layoff Spike and Legal Uncertainty

Treasury yields moved lower across the curve as fixed income markets responded to the deteriorating labor outlook. The 10-year yield fell more than 6 basis points to 4.089%, while the 2-year yield dropped to 3.566%. The 30-year yield eased to 4.686%.

The move followed skepticism from U.S. Supreme Court justices over the legality of reciprocal tariffs introduced during the Trump administration. A ruling against the policy could reduce trade tensions and inflation expectations, further weighing on yields.

The bond market’s dovish repricing pushed CME FedWatch’s implied probability for a December rate cut to 69%, up from 62% the previous day, reversing some of the hawkish repricing seen after the Fed’s November statement.

Cross-Currency Moves Reinforce Dollar Weakness

The dollar faced additional pressure from cross-currency moves. The euro climbed 0.3% to $1.15225, while sterling advanced to $1.3088 after the Bank of England left rates on hold. Though widely expected, the BoE’s decision helped preserve yield differentials relative to the dollar, reinforcing selling pressure in the DXY basket. The yen also strengthened, with USD/JPY falling 0.4% to 153.51, further dragging on the index.

Short-Term Outlook: DXY Risks Deeper Pullback

The confirmed reversal below the 200-day moving average has shifted sentiment decisively against the dollar in the short term. If the current selling pressure persists, DXY could test support at 99.463, which marks the last line of defense before the 50-day moving average at 99.359. With softer labor data, declining yields, and stronger cross-currency performance, downside risk remains elevated unless incoming data or Fed commentary shift expectations.

More Information in our Economic Calendar.