US Dollar Index (DXY) remains depressed below 101.00, over one-week low ahead of NFP

• DXY drifts lower for the third successive day and drops to over a one-week low on Friday.
• Bets for a larger Fed rate cut keep the US bond yields depressed and exert some pressure.
• Investors now look forward to the key US NFP report before placing fresh directional bets.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, prolongs this week's downfall from the vicinity of the 102.00 mark and continues losing ground for the third successive day on Friday. The downward trajectory drags the index below the 101.00 round figure, or over a one-week low during the first half of the European session as traders now look to the crucial US employment details for a fresh impetus.

The popularly known Nonfarm Payrolls (NFP) report will play a key role in influencing market expectations about the Federal Reserve's (Fed) policy path and determining the next leg of a directional move for the DXY. In the meantime, bets for a larger interest rate cut later this month, bolstered by a mixed bag of US employment data released this week, which provided evidence of a deteriorating labor market. In fact, a report on Wednesday showed that US job openings dropped to a three-and-a-half-year low of 7.673 million in July. 

Adding to this, Automatic Data Processing (ADP) reported on Thursday that private-sector employment registered the smallest rise since January 2021 and increased by 99K in August. Furthermore, Chicago Fed President Austan Goolsbee said on Friday that the longer-run trend of labor market and inflation data justify easing interest-rate policy soon and then steadily over the next year. This keeps the US Treasury bond yields depressed at their lowest levels in more than a year and continues to undermine demand for the Greenback.

With the latest leg down, the DXY has reversed a major part of last week's recovery gains from the YTD trough and remains on track to register a third week of losses in the previous four. Moreover, the aforementioned fundamental backdrop seems tilted firmly in favor of bearish traders and suggests that the path of least resistance for the index remains to the downside. That said, an upbeat US jobs report could trigger a short-covering rally, though the immediate market reaction is more likely to be limited and fizzle out rather quickly.