US Dollar Forecast: DXY Gains, EUR/USD Drops as U.S. Jobs Data Boosts Fed Pause Case

U.S. Dollar Strengthens as Jobs Data Solidifies Fed Pause Expectations

The index settled above the 50-day moving average at 106.812, which supports a strong intermediate uptrend. The 200-day moving average at 104.557 is the long-term support.

The DXY rose 0.44% to 109.640, marking its highest level since November 2022 and extending its rally for a sixth consecutive week, the longest streak since 2023.

Strong Payroll Data Fuels Dollar Momentum

The Labor Department reported a robust increase of 256,000 jobs in December, exceeding forecasts of 160,000. While November’s payroll figure was revised downward to 212,000, the unemployment rate dipped to 4.1%, below the projected 4.2%. Wage growth also supported a resilient labor market, with average hourly earnings rising 0.3% in December and 3.9% year-over-year.

The jobs data effectively tempered expectations for aggressive rate cuts. Analysts at Rabobank noted that the Fed’s path may involve just one rate cut in 2025, potentially delaying further monetary easing.

Inflation Expectations Climb, Dollar Strengthens

Consumer sentiment data from the University of Michigan showed a sharp rise in one-year inflation expectations, jumping to 3.3% in January from 2.8% in December. This marked the highest level since May and lifted the 12-month outlook above pre-pandemic norms.

Mixed Performance Across Major Pairs

The dollar touched its highest since July against the yen before paring gains to end the day 0.26% lower at 157.692 yen. However, it closed the week up 0.4% against the Japanese currency, supported by expectations of rising inflation pressures in Japan.

The euro slid to $1.0240, its lowest level since November 2022, falling 0.57% on the day and extending its weekly decline. Reuters analysts highlighted the possibility of euro-dollar parity in 2025.

Meanwhile, sterling tumbled to $1.2196, its weakest level since November 2023, amid concerns over UK fiscal policies.

Market Forecast: Dollar Bullishness Intact, Profit-Taking a Risk

With robust labor market data and inflation expectations bolstering the greenback, the U.S. Dollar Index remains poised for further gains. However, analysts caution that near-term risks, such as profit-taking ahead of key political events, could temper bullish momentum.

The focus now shifts to next week’s U.S. consumer price index (CPI) and the Fed’s January meeting, where a pause in rate cuts appears firmly priced in. The dollar’s performance will hinge on evolving inflation data and global central bank actions.

More Information in our Economic Calendar.