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The Dollar Index (DXY), which measures the value of the USD against a basket of currencies, rallies on renewed inflation concerns as the stronger than expected Nonfarm Payrolls (NFP) report pushes out the Federal Reserve’s (Fed) rate cut timeline, fueling US Dollar demand and driving the DXY closer to 110.00.

Daily digest market movers: US Dollar sees gains on a solid NFP report

• December Nonfarm Payrolls soared by 256,000, far exceeding the 160,000 forecast and reinforcing labor market resilience.
• Unemployment Rate dips to 4.1% from 4.2%, while wage inflation eased to 3.9% YoY, moderating Fed cut bets slightly.
• Bloomberg consensus initially stood at 165K for December’s job gains, though many analysts had warned of upside risks.
• Fed officials highlight diminished urgency for additional rate cuts, with concerns over major labor market slack now fading.
• Strong labor data helps the US Dollar retain its gains with the Fed likely to continue gradual cuts later in 2025 if inflation cools.
• Fed officials have shifted toward a more careful approach after December’s pivot.
• The strong employment metrics reduce the need for imminent easing, while fresh developments in growth, inflation and fiscal policy remain key variables. Markets increasingly price in no additional cuts in the near term, reinforcing US Dollar strength.

DXY technical outlook: Index hits November 2022 highs near 110.00

The US Dollar Index soared to fresh peaks not seen since November 2022 and is now approaching the 110.00 mark. Technical indicators are verging on overbought territory, suggesting a potential short-term pullback.

Nevertheless, the DXY’s solid break above prior resistance signals ongoing bullish momentum, supported by firm economic data and tempered Fed rate cut expectations. Any dip may find support near the 108.50–109.00 range.

Source: FXS