US Dollar Index (DXY) News: Dollar Firms as Traders Await Critical U.S. Jobs Report

Dollar Rises Ahead of Key U.S. Jobs Data

The U.S. dollar strengthened on Monday, reaching a two-week high against the euro and climbing to its strongest level since August 21 against the yen. The greenback’s advance comes as traders reassess the likelihood of aggressive monetary easing by the Federal Reserve, with attention now shifting to Friday’s crucial U.S. jobs report.

Dollar Supported by Rising Treasury Yields

The dollar’s rise was underpinned by an increase in long-term U.S. Treasury yields, which hit their highest level since mid-August. This followed stable U.S. inflation data that reduced expectations for a substantial 50 basis points (bps) rate cut by the Fed in its upcoming September 18 meeting. As of Monday, the dollar index (DXY), which measures the currency against a basket of major peers, edged up to 101.79, a level last seen on August 20. The dollar gained as much as 0.27% against the yen, reaching 146.60 before settling at 146.29.

Traders are currently pricing in a 33% probability of a 50-bps rate cut, down slightly from last week’s 36%, with a 67% chance of a smaller 25-bps cut. The euro slipped slightly to $1.0430, its lowest since August 19, while the British pound held steady at $1.3129.

Gold Slips as Dollar Gains

Gold prices fell on Monday as the stronger dollar made the metal less attractive to holders of other currencies. Spot gold declined 0.3% to $2,494.76 per ounce, while U.S. gold futures remained stable at $2,527.20. The market’s focus has now shifted to the upcoming U.S. non-farm payrolls report, which is expected to influence the Fed’s rate decision.

The CME FedWatch tool indicates a 69% chance of a 25-bps cut, with a 31% chance of a larger 50-bps cut. The anticipated payrolls data, alongside other economic indicators like the ISM surveys and ADP employment report, could be decisive in determining the Fed’s course of action. Economists surveyed by Reuters forecast the addition of 165,000 jobs in August, up from 114,000 in July, and a slight decrease in the unemployment rate to 4.2%.

Treasury Yields and Market Expectations

Although U.S. Treasury bonds were not traded on Monday due to a public holiday, the 10-year yield remained at 3.911%, following a 4.4-bps increase on Friday. Last week’s data, including the Fed’s preferred inflation gauge—the personal consumption expenditures (PCE) price index—supported the view that the Fed may opt for a more measured rate cut. The PCE index rose 0.2% in July, aligning with expectations and easing recession fears.

Market Forecast: Cautious Dollar Strength Ahead

Looking ahead, the dollar’s strength is likely to be tested by this week’s economic data, particularly the non-farm payrolls report. A robust jobs number could cement expectations for a 25-bps rate cut, potentially supporting the dollar further. However, analysts like Sycamore caution that sustained gains against the yen would require a break above key resistance levels, while the euro’s outlook remains mixed given the easing expectations from both the Fed and the European Central Bank.

Traders should monitor the upcoming data releases closely, as they will be crucial in shaping near-term dollar movements and broader market sentiment.