US Dollar Index Rebounds But Lacks Momentum
On Thursday (September 4), the US Dollar Index slightly rebounded after several days of weakness, peaking at 98.359 with a 0.25% rise. However, this recovery was more due to market position adjustments rather than a strong bullish momentum. Analysts noted that traders are cautious ahead of the non-farm payroll report, and the short-term rise of the dollar might not sustain.
Weak Labor Market Signals
Recently released employment data has heightened market concerns about an economic slowdown. The initial jobless claims in the US rose to 237,000, exceeding market expectations. According to ADP data, private sector employment increased by only 54,000 in August, significantly below the forecast of 75,000, and showing a marked slowdown from the previous month.
This weak data indicates a deteriorating hiring environment, reinforcing market confidence in the Federal Reserve adopting easing measures. This sentiment quickly reflected in the bond market, with the 10-year US Treasury yield dropping to 4.19% and the 2-year yield falling to 3.60%.
Rate Cut Expectation Almost Certain
According to the CME FedWatch tool, the market currently believes there is nearly a 100% probability that the Federal Reserve will cut interest rates by 25 basis points at the September 17 meeting, a significant increase from last week's 89%. Traders generally believe the Fed will have to adopt more accommodative policies in the face of slowing labor market and easing inflation pressures.
However, long-term Treasury yields remain high, with the 30-year yield hovering around 4.90%, reflecting ongoing concerns in the market about fiscal deficits and supply pressures.
Technical Observation: Holding the 50-Day Moving Average
From a technical perspective, the US Dollar Index is supported at the 98.000 level by the 50-day moving average, but its upward momentum is limited. The 98.370 mark is seen as a short-term key point; if it closes above this level, it may drive the index to test the resistance range of 98.635 and 98.834. If the support fails, attention should shift to the lower defensive lines at 97.859 and 97.536.
Traders point out that the current trend of the US Dollar Index is rather volatile, lacking clear trend guidance. The outcome of the non-farm payroll report will be the key catalyst determining whether the dollar can break through the 99 threshold.
Cautious Atmosphere Dominates
Although the dollar rose slightly on Thursday, market participants generally believe the upside potential is limited. If non-farm data continues to show weakness, the dollar index may remain under pressure, unable to break the 99 threshold. If the data is unexpectedly strong, it may support a short-term dollar rebound, but in the context of long-term low interest rate expectations, the rebound might not last.
Overall, the Fed's policy shift has almost been priced in by the market, and the future path of the dollar will depend more on labor market performance and the latest statements from Federal Reserve officials. Investors have chosen to remain on the sidelines before the weekend, waiting for key signals to emerge.
