US Dollar wavers as soft data dims economic outlook

FXStreetApr 1, 2025 6:33 PM

DXY trades near the 104.20 zone after mixed reaction to PMI and Job Openings data.
Manufacturing activity contracts and hiring slows, keeping stagflation risks in play.
Resistance seen around 104.84 with support clustering near 104.13.

The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, trades near the 104.20 area on Tuesday, showing little directional bias after a series of soft US economic data releases. A weaker-than-expected ISM Manufacturing PMI print, a decline in Job Openings, and cautious Fed commentary paint a murky outlook for the Greenback. Despite modest gains, the technical backdrop remains fragile as traders look ahead to further macro drivers later this week.

Daily digest market movers: US Dollar steadies as cracks widen in data

US ISM Manufacturing PMI fell to 49 in March from 50.3 in February, missing the 49.5 forecast.
The sector's Employment Index dropped to 44.7, its lowest since last July, signaling a faster pace of job cuts.
The Prices Paid Index surged to 69.4 from 62.4, pointing to renewed inflationary pressure amid tariff-linked supply issues.
Chair of ISM's Business Survey Committee said demand remains confusing for businesses with destaffing and production cuts ongoing.
US JOLTS Job Openings dropped to 7.56 million in February, below expectations and confirming labor market softening.
Total hires and separations remained broadly unchanged at 5.4 million and 5.3 million, respectively.
Fed’s Barkin warned that current data is hard to read, calling it “wrapped in a thick fog.”
Despite declining Job Openings, the Fed’s updated SEP projects a stable Unemployment Rate near 4.4% in 2025.
Currency markets appear less reactive to tariffs, focusing more on signs of economic stagnation or contraction.
Traders are increasingly cautious ahead of Friday’s Nonfarm Payrolls (NFP) report.
CME data shows low odds of a May rate cut, but dovish pressure could build with further data disappointments.
The DXY continues to drift between 104.00 and 105.00 as the market searches for conviction.
Risk sentiment remains fragile with traders wary of additional downside in equities and bonds.

Technical analysis

The US Dollar Index is posting modest gains on Tuesday, but the broader technical outlook remains bearish. The Moving Average Convergence Divergence (MACD) still signals a potential bullish crossover, yet longer-term indicators such as the 100-day and 200-day Simple Moving Averages (SMA), as well as the 30-day Exponential Moving Average (EMA), continue to flash sell signals.

The Relative Strength Index (RSI) at 76.92, alongside stochastic readings, points to overbought conditions, while the Awesome Oscillator remains neutral. The 20-day SMA offers mild bullish support. Resistance is located at 104.435, 104.841 and 104.847, while support lies near 104.169, 104.165 and 104.128.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.

Disclaimer: The information provided on this website is for educational and informational purposes only and should not be considered financial or investment advice.