The US Dollar Index (DXY) is trading in consolidation mode above the 98.50 level after staging a modest rebound from Friday’s sharp slide. The Greenback’s stability is being tested by conflicting US services sector data, growing expectations of a Federal Reserve rate cut in September, and an escalating global trade dispute led by President Trump’s tariff campaign.
At the time of writing, DXY hovers near 98.96, regaining ground lost in the wake of a weaker-than-expected Nonfarm Payrolls (NFP) report. However, the dollar’s near-term path remains uncertain, clouded by soft labor market signals, rising inflationary pressures, and geopolitical instability.
S&P PMIs Outshine, ISM Services PMI Disappoints
The latest Purchasing Managers’ Index (PMI) data presented a mixed picture of the US services sector. The S&P Global Services PMI for July came in at 55.7, ahead of the expected 55.2. Meanwhile, the Composite PMI rose to 55.1 from 54.6 suggesting resilience in private sector activity, particularly in service-based industries.
However, the more closely watched ISM Services PMI told a different story. It dropped to 50.1, barely above the expansion-contraction threshold and well below expectations of 51.5. Key sub-components weakened:
Employment Index fell to 46.4 (from 47.2)
New Orders Index dropped to 50.3 (from 51.3)
Prices Paid Index surged to 69.9 (from 67.5)
This divergence shows that while some segments of the economy remain robust, others are showing clear signs of fatigue, particularly in hiring and demand. For the Fed, this creates a difficult backdrop inflation is still sticky, but the labor market is losing momentum.
July NFP Miss Deepens Bearish Sentiment
Friday’s NFP report was a blow to Dollar bulls. The US economy added just 73,000 jobs in July, far below the consensus estimate of 110,000. Making matters worse, May and June jobs figures were revised down by a combined 258,000.
Such weak labor data has effectively cemented expectations of a Fed rate cut in September, especially with inflation moderating and forward-looking job indicators (like the ISM Employment Index) pointing to more softness ahead.
According to the CME FedWatch Tool, markets now price in a 92% probability of a 25-basis-point cut at the September FOMC meeting. Fed funds futures markets have shifted aggressively in favor of policy easing.
US Dollar Rebounds Modestly But Risks Abound
Despite the bearish backdrop, the US Dollar has managed to climb from last week’s lows rebounding from near 98.60 to 98.96. The Greenback has found modest support amid lingering global uncertainty and ongoing flight-to-safety dynamics.
But make no mistake: the US Dollar outlook is fragile. The rally is not backed by strong fundamentals, and the Fed’s likely dovish pivot in September is expected to cap upside.
Trump’s New Tariff Policy: A Wildcard for the US Dollar
One of the biggest geopolitical headwinds weighing on the US Dollar is President Donald Trump’s renewed trade offensive.
On Friday, Trump signed a sweeping executive order imposing new reciprocal tariffs (ranging from 10% to 41%) on imports from nearly 70 countries, including:
- India
- Switzerland
- Canada
- Taiwan
- Brazil
While the August 1 deadline has passed, the tariffs are set to take effect on August 7, unless the administration announces a temporary extension.
Furthermore, US-China trade talks remain deadlocked, with the August 12 truce deadline approaching. Any escalation or collapse in negotiations could unleash another wave of volatility, affecting Dollar sentiment.
Market Jitters Rise After Trump Fires BLS Chief
In a stunning move that rattled institutional confidence, President Trump dismissed BLS Commissioner Erika McEntarfer shortly after the release of the weak July jobs data. This political interference in economic data agencies has sparked alarm among investors and analysts, raising concerns about the credibility of future government statistics.
If economic data becomes politically compromised, expectations around monetary policy could become distorted, potentially impacting Fed independence and investor trust.
Technical Picture: DXY Faces Key Resistance at 99.20–99.50
On the technical side, the US Dollar Index remains trapped below a resistance zone between 99.20 and 99.50. The 100.26 level a two-month high is proving difficult to reclaim without stronger macro support.
Support: 98.50, followed by 98.20
Resistance: 99.20 and 99.50
RSI: Neutral at 49
Bias: Cautiously bearish unless the Fed changes tone
A daily close below 98.50 would likely signal a renewed bearish wave driven by further Fed dovishness or negative US macro surprises.
What to Watch This Week
Markets will remain laser-focused on the Federal Reserve’s communications this week. Several Fed officials are scheduled to speak, and their comments will be dissected for signs of commitment to a September rate cut.
Other key catalysts:
US CPI Inflation (due August 8)
Initial Jobless Claims
US-China trade truce deadline (August 12)
Global central bank commentary (ECB, BoE, BoJ)
Any dovish shift in tone or confirmation of soft inflation prints could reinforce the Dollar’s downtrend.
Conclusion: DXY Holds the Line But Cracks Are Showing
The US Dollar Index is consolidating, not recovering. The brief stabilization above 98.50 is a technical reprieve, not a fundamental comeback. With soft labor data, conflicting PMI signals, and a 92% chance of a Fed rate cut, the broader trend remains tilted to the downside.
The risk of policy missteps, tariff shocks, and institutional credibility erosion further complicates the macro landscape.
Unless upcoming data surprises to the upside or the Fed walks back its dovish bias, the Greenback may struggle to break above 99.50, and could gradually drift toward 98.00 in the sessions ahead.
Disclaimer: This blog is for informational purposes only and does not constitute financial advice. Always conduct your own research and consult a professional advisor before making investment decisions.
[sc_fs_multi_faq headline-0=”h2″ question-0=”Why is the US Dollar Index consolidating above 98.50?” answer-0=”The DXY is holding above 98.50 due to mixed economic signals — stronger S&P PMIs are offset by weaker ISM and NFP data. Technical support is helping keep the index afloat, despite growing Fed rate cut expectations.” image-0=”” headline-1=”h2″ question-1=”Will the Fed cut rates in September?” answer-1=”Yes. Markets are pricing in a 92% chance of a 25bps rate cut in September due to soft labor market data and weakening economic indicators.” image-1=”” headline-2=”h2″ question-2=”What are the risks to the US Dollar going forward?” answer-2=”The main risks include: Fed’s dovish pivot Rising inflationary pressures Political interference in economic data Trump’s tariff decisions and trade tensions” image-2=”” count=”3″ html=”true” css_class=””]
