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US Dollar Index Edges Higher on NFP As Analysts Call for a Drop

Simon Mugo trader
Updated 7 Oct 2022

Trade the US Dollar Index Your capital is at risk

Key points:

  • The Dollar Index edged0.13% higher today despite upbeat NFP data.
  • Investors had already priced in the outperformance hence the reaction.
  • The dollar will most likely weaken as we head into next week.

The US Dollar index today edged slightly higher after the release of the non-farm payrolls data for September, which came in at 263,000 jobs beating analysts’ estimates of 248,000 new jobs. The unemployment rate also surprisingly fell to 3.5% compared to 3.7% in August.

Yet, the DXY’s price action was nothing to write home about. The dollar index barely rallied compared to the gains notched on Wednesday after the release of the ADP employment change data, which was a precursor to today’s NFP data.

Also read: Tips On How To Avoid Losing Money When Trading Forex.

The Dollar Index’s muted reaction to the significantly positive jobs and labor market data suggests that investors had already priced in positive data and were not surprised by the outperformance seen in today’s data.

The lack of movement in the dollar index indicates that investors have priced in most of the good news coming out of the United States into the dollar, and as such, its peers may get a chance to rally against the world’s reserve currency in the coming week.

Some of the dollar’s peers, including the British pound and Canadian dollar, had recouped some initial losses against the greenback, indicating that the US dollar was weakening as its peers gained.

Today’s data confirmed that the US Federal Reserve would continue with its aggressive interest rate hikes as two Fed speakers, Mary Daly and Christopher Waller, called for more aggressive rate hikes.

Investors will be watching next week’s US inflation data for clues as to whether inflation in the country is cooling down. Despite calling for rate hikes, Mary Daly reassured investors that the Fed would not keep hiking rates until the economy crashes since they are constantly monitoring the economic conditions.

Still, the most likely path for the dollar index from here is lower as other currencies rally higher. However, the situation could change if there is weak data from other countries and regions that weakens their local currencies, giving the dollar a boost.

*This is not investment advice.

US Dollar Index price chart.

US Dollar Index price 07-10-2022
Source: Tradingview

The US Dollar Index was trading up 14.3 pips (0.13%) after the release of the non-farm payroll data.

Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action trading