US Dollar extends losing streak as weak labor data fuels selloff
- DXY drops over 2.5% this week as selling pressure intensifies.
- ADP employment data misses expectations, showing hiring slowdown.
- ISM Services PMI beats forecasts, signaling economic resilience.
- Technical indicators suggest further downside as key support levels break.
The US Dollar Index (DXY), which tracks the Greenback’s performance against six major currencies, is extending its decline for the third consecutive day on Wednesday. The weaker-than-expected labor market data, coupled with rising trade tensions and policy uncertainty, is pushing the US Dollar further down.
While the services sector remains robust, the market is focusing on the ADP employment shortfall, reinforcing expectations of a slowing economy. So far, the DXY has depreciated over 2.5% this week, with no immediate signs of reversal.
Daily digest market movers: US Dollar weakens amid labor concerns
- DXY plunges below key levels, marking the lowest point since November 2024.
- ADP employment report shows the US private sector added only 77K jobs, missing expectations of 140K.
- On the positive side, ISM Services PMI rises to 53.5, exceeding forecasts and showing continued economic expansion.
- That being said, inflationary pressures persist, with the Prices Paid Index climbing to 62.6 from 60.4.
- Employment Index within ISM data improves, rising to 53.9 from 52.3.
- CME FedWatch Tool indicates increased rate cut expectations for later this year and investors may start betting on 100bps of easing in 2025.
DXY technical outlook: Bearish momentum intensifies
The US Dollar Index (DXY) continues to slide, falling below both the 20-day and 100-day Simple Moving Averages (SMA), which are nearing a bearish crossover around 107.00. The completion of this pattern could reinforce further downside pressure, leaving the US Dollar vulnerable to further declines.
The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) continue pointing lower, confirming bearish momentum. With the index now at levels not seen since November 2024, a sustained break below 106.00 could open the door for a move toward 105.50 and beyond.
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.