US Dollar Forecast: EUR/USD Drops as Strong U.S. Jobs Data Pressures Gold

Dollar Hits Seven-Week High on Strong U.S. Jobs Data

The U.S. dollar surged to a seven-week high on Friday following better-than-expected labor market data, which reduced the likelihood of aggressive rate cuts from the Federal Reserve.

Nonfarm payrolls increased by 254,000 in September, significantly surpassing forecasts of 150,000. Revised figures for August showed 159,000 new jobs. The unemployment rate also dropped to 4.1%, down from 4.2%, indicating continued labor market strength.

The dollar index (DXY) jumped to 102.649, its highest since August 16. The euro fell to $1.0958, while the dollar climbed to 148. 803 yen. These movements reflect traders scaling back expectations for a larger Fed rate cut after the strong economic data.

Technically, the index is testing an intermediate pivot a 102.100. Overcoming this level could trigger another acceleration into the main pivot at 103.144.  On the downside, the key support is a price cluster at 101.852 to 101.821.

Treasury Yields Surge Following Jobs Report

U.S. Treasury yields rose sharply after the release of the jobs report. The 10-year Treasury yield increased by 9 basis points to 3.946%, and the 2-year yield climbed 14 basis points to 3.85%. Yields jumped as investors adjusted their expectations for future Federal Reserve actions, with the odds of a 50-basis-point cut in November declining sharply.

According to CME Group’s FedWatch tool, traders now see a 91% chance of a 25-basis-point rate cut at the next meeting, compared to prior hopes for a more substantial reduction.

Gold Prices Drop on Strong Dollar and Lower Rate Cut Expectations

Gold prices slipped as the stronger U.S. dollar and lower expectations for a large rate cut weighed on the metal. Gold is more attractive in a low-rate environment, but the stronger-than-expected jobs data led traders to reduce the probability of a 50-basis-point cut from 28% to 11%.

“Gold stumbles as a strong payrolls report seems likely to lock in 25bps in November,” said Tai Wong, an independent metals trader. Despite the dip, he expects any retracement in gold to be limited due to ongoing bullish sentiment.

Geopolitical tensions could still provide upside potential for gold. Phillip Streible, chief market strategist at Blue Line Futures, noted that if political events escalate, gold prices could rise toward $2,700, approaching all-time highs. Tensions in the Middle East, particularly between Iran and Israel, may act as a key driver for the safe-haven asset.

Market Forecast: Dollar to Stay Strong, Gold Under Pressure

With expectations now leaning toward a smaller 25-basis-point rate cut in November, the dollar is likely to maintain its strength, especially against the euro and yen. Gold may face further declines in the short term, though geopolitical risks could offer support. Traders should remain alert to any new data or developments that could impact market sentiment.