US Dollar Index breaks below 98.00 as US labor data cool job market

Finance

US Dollar Index breaks below 98.00 as US labor data cool job market

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, edges lower after two days of gains and trades around 97.90 during the Asian hours on Friday. Traders will watch the preliminary February Michigan Consumer Sentiment Index, due for release later in the North American session.

The Greenback softens as recent US labor data point to a cooling job market, reinforcing dovish Fed expectations. Markets now price two rate cuts this year, starting in June, with another potentially in September.

The CME FedWatch tool suggests that markets are pricing in nearly a 77.3% chance that the Federal Reserve (Fed) will hold interest rates steady at its March policy meeting, with anticipation of a first rate reduction in June.

Data from the US Department of Labor showed Initial Jobless Claims rose to 231K in the week ending January 31, above estimates of 212K and the prior 209K. Meanwhile, ADP reported private payrolls rose by just 22K in January, well below expectations of 48K and the previous 37K (revised from 41K).

However, the DXY remains near two-week highs, supported by the slowing pace of potential Federal Reserve (Fed) rate cuts. Fed Governor Lisa Cook said she would not back another cut without clearer evidence that inflation is easing, stressing greater concern over stalled disinflation than labor market weakness.

Traders also weighed the implications of Kevin Warsh‘s nomination as Fed chair, citing his preference for a smaller balance sheet and a less aggressive approach to rate reductions. The nomination also eased concerns about the Fed’s independence.