The Dollar Index (DXY) slipped through 102.00 and printed a session low just under 101.70 after US payrolls undershot expectations. US employers added 29K jobs in September versus a 90K forecast, while July and August were revised down by a combined 60K, pushing those months into net job-loss territory. The unemployment rate rose to 4.2%, and hourly pay increased 3.0% year-on-year against a 3.2% forecast.
Rate pricing shifted, with traders assigning about a one-in-five chance of another rate hike on 28 October, and the two-year Treasury yield fell in line with softer Fed expectations. The resulting drop in US yields reduced the interest-rate advantage of holding Dollars over Euros, which represent 57.6% of the DXY basket. Technically, DXY had climbed to just above 102.10 before the release, then slid from 102.00 to around 101.80, rebounded but stalled short of 102.00, and later recovered to near 101.90.
US Dollar Outlook After Weak Payrolls Report
We expect the US Dollar to face sustained downward pressure in the coming weeks after the shocking September payrolls report of just 29K jobs. With the unemployment rate climbing to 4.2% and wage growth slowing to 3.0%, the Federal Reserve is highly unlikely to raise interest rates at its October 28 meeting. Historically, major hiring slowdowns of this scale lead to aggressive monetary easing, which typically drags the greenback lower.
Tactical Opportunities in Currencies and Commodities
Derivative traders should consider selling the Dollar on temporary rallies, targeting the key support level below 101.70. Since the Euro makes up 57.6% of the Dollar Index, we should look for buying opportunities in EUR/USD as the yield spread narrows. During similar historical shifts in Fed policy, such as the monetary pivot in late 2024, the Euro capitalized heavily on declining US Treasury yields.
The drop in the two-year Treasury yield signals that capital is actively seeking alternative assets. We suggest exploring long positions in gold derivatives, which historically thrive when US yields and the Dollar decline. If upcoming economic data continues to show cooling, precious metals could break out to new highs over the next month.
While the trend favors a weaker Dollar, we must manage risk carefully around upcoming retail sales and inflation releases. Sharp market swings are highly likely as the market debates whether the US economy is heading for a soft landing or a deeper recession. Using disciplined stop-loss orders on major currency pairs will help protect capital from sudden reversals.
