The US dollar might experience renewed pressure if US payrolls data does not meet expectations. This could lead to increased forecasts of a Federal Reserve rate cut in September. A disappointing nonfarm payrolls report could support the notion of a possible 50-basis-point rate reduction at the Fed’s meeting on September 17.
Currently, markets expect a 25-basis-point cut this month and over 100 basis points of easing by September 2026. Only a strong jobs report may alter the Fed’s course regarding rate cuts next month. The nonfarm payrolls report is set for release on Friday, September 5, at 8:30 am US Eastern time.
Focus on Cooling Labor Market
With the crucial Nonfarm Payrolls (NFP) report due this Friday, September 5th, we are focusing on signs of a cooling labor market. A disappointing jobs number would almost certainly lock in a Federal Reserve rate cut on September 17th, potentially even a larger 50-basis-point move. This places significant downward pressure on the US dollar.
Job growth has been trending lower over the past year, and the report for July 2025 saw a downward revision to just 141,000 jobs. Current market consensus for the upcoming August report is a modest 150,000, so any figure below 120,000 would be seen as a major miss. This would reinforce the narrative that the economy is slowing, which we have also seen in weakening ISM manufacturing data from last month.
The fed funds futures market is already pricing in a 92% probability of a 25-basis-point cut this month, a situation that intensified after the latest CPI inflation reading for July came in at a subdued 2.7%. Given that a cut is largely expected, the real opportunity lies in the potential size of the move and the market’s reaction. We remember how in 2019, a similar pivot by the Fed led to a sustained rally in equities and a weaker dollar.
Position for Increased Volatility
Traders should consider positioning for increased volatility around the U.S. dollar. Buying put options on the U.S. Dollar Index (DXY) expiring after the Fed meeting offers a way to profit from a dollar decline while strictly limiting risk. Alternatively, going long call options on currency pairs like EUR/USD or GBP/USD provides similar exposure.
For those focused on interest rates, buying call options on Treasury bond futures (like the ZN or ZB) is a direct play on yields falling in response to a weak jobs report. These contracts will increase in value if the market anticipates more aggressive and sustained rate cuts from the Fed. A weak number would likely cause a sharp drop in the 2-year Treasury yield.
Conversely, a surprisingly strong jobs report, perhaps over 225,000, would challenge the rate-cut narrative and could cause a sharp, albeit likely temporary, spike in the dollar. A cost-effective hedge for this scenario would be buying cheap, out-of-the-money put options on major stock indices. If the Fed is forced to delay cuts, this could trigger a sell-off in equities.
