US Dollar witnesses further drop amid weak labor market figures

• US Dollar extends its downward trend after ending last week with 0.85% loss.
• NFPs highlight was an unexpected rise in Unemployment.
• Markets are now seeing two cuts in 2024.

The US Dollar, represented by the DXY Index, has extended its decline, weighed down by soft labor market figures falling below 105.00 on Friday.

Amid growing signals of disinflation in the US economy, there is growing confidence in a September rate cut. However, Federal Reserve (Fed) officials continue to refrain from immediate rate cuts, maintaining a data-dependent approach, but have started to acknowledge labor market struggles.

Daily digest market movers: US Dollar sags further after lackluster labor market data

• Nonfarm Payrolls (NFP) in the US increased by 206K in June as reported by the US Bureau of Labor Statistics (BLS) on Friday.
• NFP figure exceeds the market expectation of 190K yet falls short compared to May's revised increase of 218K (adjusted from 272K).
• Unemployment Rate inched higher to 4.1% from 4%, and the Labor Force Participation Rate edged up slightly to 62.6% from 62.5%.
• Average Hourly Earnings, the key metric for wage inflation, dipped to a YoY rise of 3.9% from 4.1%, aligning with market expectations.
• Fed swaps market has resumed full pricing in two rate cuts for year-end.
• Nonetheless, those figures will depend on how Fed officials interpret ongoing labor market data and inflation figures.

DXY technical outlook: DXY continues to be plagued by challenges, now approaching 200-day SMA

After losing its hold over the 20-day Simple Moving Average (SMA), the technical outlook for the DXY Index has turned negative. Both the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator have dipped into the negative zone with the latter at its lowest since mid-June.

If the selling pressure persists, the 104.70 level (200-day SMA) will offer strong support.