US Dollar Forecast: DXY Holds Above 50-Day — Is the Fed Cut Already Priced In?

Labor Market Weakness Shifts Fed Expectations

The U.S. Dollar Index (DXY) traded marginally higher at 98.396 on Thursday, recovering from recent softness as weaker-than-expected labor market data fueled expectations of a September rate cut by the Federal Reserve. Market participants are staying cautious ahead of Friday’s pivotal non-farm payrolls release, which could confirm or challenge current policy assumptions.

Initial jobless claims climbed to 237,000 last week, overshooting consensus by 8,000 and pointing to softening hiring conditions. In parallel, the ADP National Employment Report showed private payroll growth at just 54,000 in August—well below the expected 75,000 and marking a steep slowdown from July’s 106,000. These signals have reinforced dovish sentiment in bond and FX markets.

Treasury Yields Slip as Traders Price in Fed Cuts

U.S. Treasury yields slipped across the curve following the weak labor prints. The 10-year yield eased 2.1 basis points to 4.19%, while the 2-year fell to 3.60%. The longer end, however, remains elevated, with the 30-year yield holding just below 4.90%, reflecting lingering fiscal concerns globally.

Markets are now assigning nearly a 100% probability to a Fed rate cut at the September 17 meeting, up sharply from 89% a week ago, according to CME FedWatch.

Dollar Edges Higher, But Gains Remain Limited

Despite the data-driven dovish shift, the dollar posted mild gains on Thursday. It rose 0.25% against the yen to 148.46 and added 0.15% versus the Swiss franc.

The greenback’s uptick reflects positioning caution rather than bullish conviction, with many traders opting to stay sidelined until Friday’s labor report.

The euro slipped 0.16% to 1.1642, while the pound edged lower to 1.3425. Commodity currencies broadly weakened, with AUD down 0.6% to $0.6504 and CAD falling 0.28% to 1.38.

Technical Outlook: Dollar Index Stuck in Tight Range, Watching 98.370 Pivot

The DXY remains confined between resistance at 98.834 and support at 97.536. The 50-day moving average, currently at 98.000, is acting as short-term support.

Overcoming the pivot at 98.370 will be a sign of strength. A close above this level could generate enough momentum to test resistance at 98.635 and 98.834.

If the 50-day fails to hold, look for a move toward the Fibonacci pivot at 97.859, with deeper support at the recent swing low of 97.536.

Market Forecast: Soft Jobs Data to Anchor DXY Below 99

Unless Friday’s non-farm payrolls print strongly surprises to the upside, DXY is likely to stay capped below 99 in the near term. Fed commentary and labor data now align in pricing a policy shift, and Treasury yields are reflecting that repricing.

Traders will be watching closely for signs that labor deterioration is broadening, which would validate a lower-for-longer rate regime and keep the dollar under pressure through the Fed’s September meeting.

More Information in our Economic Calendar.