Dollar Weekly Review – Weaker Jobs Data Triggers Rate Cut Bets

Key Takeaways:

*Stronger PCE, weaker NFP: Mixed signals complicate the Fed's path forward.

*Rate cut expectations revive, weighing on the dollar and Treasury yields.

*Trump pressure returns, raising questions about Fed independence.

Market Summary:

The US Dollar Index (DXY) endured a volatile week, initially rising on stronger inflation data before giving up gains after a dismal jobs report triggered renewed expectations for a Fed rate cut.

The week began with the Core PCE Price Index—the Feds preferred inflation gauge—posting a 2.8% YoY increase, slightly above expectations of 2.7%. This initially strengthened the dollar, reinforcing the view that inflationary pressures remain persistent, and the Fed could delay rate cuts.

However, bullish sentiment reversed sharply on Friday as the US Nonfarm Payrolls report disappointed. According to the Bureau of Labor Statistics, July payrolls increased by just 73,000, well below consensus estimates of 110,000. At the same time, the unemployment rate edged up to 4.2%, from 4.1%, although still within market forecasts.

The weak jobs data fueled a sharp retreat in the dollar and triggered a decline in Treasury yields, as investors re-priced expectations for a possible Fed rate cut as early as September. This also reignited discussions around political pressure on the Fed, as President Donald Trump has repeatedly called for rate cuts. Now, with the labor market showing signs of cooling, the Fed may face increasing scrutiny over its policy stance.

Given the conflicting signals from inflation and employment data, markets are likely to remain in wait-and-see mode ahead of further macroeconomic catalysts—including the upcoming CPI and FOMC minutes.

Technical Analysis

DXY, H4:

The Dollar Index is currently under pressure, trading near key support levels.

*MACD shows increasing bearish momentum, with the histogram turning more negative

*RSI stands at 45, below the midline, indicating lingering bearish sentiment without being oversold.

*The index is hovering around 98.75, where the short-term moving average (red) and horizontal support intersect.

A confirmed breakdown below 98.75 would open the door to a deeper decline toward the next support at 97.75. On the flip side, a failure to break lower could trigger a rebound back toward the long-term MA (yellow) and potentially retest resistance at 100.15 or even 101.15, depending on macro triggers.

Resistance level: 100.15, 101.15

Support level: 98.75, 97.75