US Dollar continues downward spiral as labor data disappoints
- DXY weakens further amid rising job cuts and trade deficit concerns.
- Challenger Job Cuts report shows layoffs surged over 100% in February.
- ECB cuts rates by 25 basis points, revising inflation outlook upward.
- US Jobless Claims and trade balance data highlight economic strains.
The US Dollar Index (DXY) is extending its losing streak on Thursday as fresh labor market and trade data put additional pressure on the Greenback. Job cuts surged dramatically, while weekly jobless claims showed a mixed picture of the labor market.
Meanwhile, the European Central Bank (ECB) delivered a widely anticipated rate cut, with President Christine Lagarde emphasizing the need for heightened vigilance in uncertain economic conditions.
Daily digest market movers: US Dollar down after an additional round of soft labor data, ECB
- The latest Challenger Job Cuts report for February revealed a sharp rise in layoffs, more than doubling compared to January.
- Continuing Jobless Claims climbed to nearly 1.90 million, signaling challenges in the employment market despite Initial Jobless Claims dropping to 221,000.
- The European Central Bank lowered its deposit rate by 25 basis points to 2.50 percent, aligning with market forecasts and keeping policy on a steady path.
- The ECB raised its inflation outlook for 2025, fueling concerns that persistent price pressures could complicate future policy decisions.
- Christine Lagarde emphasized the importance of a data-driven approach, stressing that the ECB must remain flexible in an increasingly volatile economic environment.
- Regarding Fed expectations, the CME FedWatch Tool now shows a growing probability of a Federal Reserve rate cut in June, with expectations surpassing 85 percent.
DXY technical outlook: Bearish trend accelerates
The US Dollar Index (DXY) remains under pressure, breaking below key support levels. The 20-day and 100-day Simple Moving Averages (SMA) are nearing a bearish crossover, reinforcing negative momentum. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) continue to tilt bearish, suggesting further downside risks. If DXY fails to find support near 103.00, the next key level to watch is 102.50, which could mark the continuation of the current selloff.
Employment FAQs
Labor market conditions are a key element to assess 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 thus 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 and thus monetary policy as low labor supply and high demand leads to higher wages.
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.
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 its significance as a gauge of the health of the economy and their direct relationship to inflation.
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