US Dollar under severe selling pressure after labor data
- DXY drops over 2.5% this week as selling pressure intensifies.
- ADP employment data misses expectations, showing hiring slowdown.
- ISM Services PMI beats forecasts, signaling economic resilience.
- Technical indicators suggest further downside as key support levels break.
The US Dollar Index (DXY), which tracks the Greenback’s performance against six major currencies, is extending its decline for the third consecutive day on Wednesday. The weaker-than-expected labor market data, coupled with rising trade tensions and policy uncertainty, is pushing the US Dollar further down.
While the services sector remains robust, the market is focusing on the ADP employment shortfall, reinforcing expectations of a slowing economy. So far, the DXY has depreciated over 2.5% this week, with no immediate signs of reversal.
Daily digest market movers: US Dollar weakens amid labor concerns
- DXY plunges below key levels, marking the lowest point since November 2024.
- ADP employment report shows the US private sector added only 77K jobs, missing expectations of 140K.
- On the positive side, ISM Services PMI rises to 53.5, exceeding forecasts and showing continued economic expansion.
- That being said, inflationary pressures persist, with the Prices Paid Index climbing to 62.6 from 60.4.
- Employment Index within ISM data improves, rising to 53.9 from 52.3.
- CME FedWatch Tool indicates increased rate cut expectations for later this year and investors may start betting on 100bps of easing in 2025.
DXY technical outlook: Bearish momentum intensifies
The US Dollar Index (DXY) continues to slide, falling below both the 20-day and 100-day Simple Moving Averages (SMA), which are nearing a bearish crossover around 107.00. The completion of this pattern could reinforce further downside pressure, leaving the US Dollar vulnerable to further declines.
The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) continue pointing lower, confirming bearish momentum. With the index now at levels not seen since November 2024, a sustained break below 106.00 could open the door for a move toward 105.50 and beyond.
Tariffs FAQs
Tariffs are customs duties levied on certain merchandise imports or a category of products. Tariffs are designed to help local producers and manufacturers be more competitive in the market by providing a price advantage over similar goods that can be imported. Tariffs are widely used as tools of protectionism, along with trade barriers and import quotas.
Although tariffs and taxes both generate government revenue to fund public goods and services, they have several distinctions. Tariffs are prepaid at the port of entry, while taxes are paid at the time of purchase. Taxes are imposed on individual taxpayers and businesses, while tariffs are paid by importers.
There are two schools of thought among economists regarding the usage of tariffs. While some argue that tariffs are necessary to protect domestic industries and address trade imbalances, others see them as a harmful tool that could potentially drive prices higher over the long term and lead to a damaging trade war by encouraging tit-for-tat tariffs.
During the run-up to the presidential election in November 2024, Donald Trump made it clear that he intends to use tariffs to support the US economy and American producers. In 2024, Mexico, China and Canada accounted for 42% of total US imports. In this period, Mexico stood out as the top exporter with $466.6 billion, according to the US Census Bureau. Hence, Trump wants to focus on these three nations when imposing tariffs. He also plans to use the revenue generated through tariffs to lower personal income taxes.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
