US Dollar Index News: DXY Slumps on Soft ADP Payroll Data, Is the Rally Over?

Highlights

• The U.S. dollar stumbles as ADP’s September payroll report falls drastically short of expectations.
• British pound finds room to breathe as U.S. dollar softens, despite underwhelming UK PMI data.
• Market speculates on a more dovish Federal Reserve policy, but recession concerns linger.

Overview

The U.S. dollar took a hit on Wednesday, tumbling in response to disappointing labor market data that softened U.S. bond yields. This comes on the heels of a Tuesday session where the dollar index nearly hit a 10-month high, supported by a 10-year yield at its highest level since 2007.

The ADP’s recent report indicated that private payrolls in September grew by a mere 89,000, falling short of the 160,000 estimated and significantly less than the prior month’s 180,000. The weak jobs data has stoked speculation that the Federal Reserve may adopt a more accommodative policy stance, although recession concerns remain. Upcoming labor statistics from the Labor Department are highly anticipated.

Across the Atlantic, the British pound showed signs of life against the sagging dollar. Recent PMI data for the UK revealed a business climate less bleak than feared, though still below the growth threshold. Sterling’s uptick could be short-lived due to rising U.S. bond yields and the market’s growing conviction that the Bank of England has concluded its interest rate hiking cycle.

Both currencies are facing their own sets of uncertainties—political turmoil in the U.S. and monetary policy doubts in the UK. Nevertheless, the U.S. dollar retains some resilience owing to expectations of higher interest rates, relative to the UK.

In the short term, the U.S. dollar seems bearish given the recent economic and political indicators. For the pound, a close above $1.22 could indicate a potential turnaround, although the market sentiment remains cautious.

Technical Analysis

Based on the daily chart data, the current price of 106.850 is comfortably above both the 200-Day and 50-Day moving averages, sitting at 103.136 and 104.154 respectively. This signals a bullish momentum, substantiated further by the price being above the main support level of 103.572.

While the price is slightly below the previous close of 107.077, it hovers just beneath the minor resistance level of 106.904. With trend line support at 105.761 still holding, the market sentiment, in essence, leans bullish.

The indicators are sufficient to infer a prevailing bullish sentiment, nonetheless, the distance between the current price and the uptrend line indicates the index could be vulnerable to a near-term setback.