CPI and unemployment data boost Fed rate cut bets, weakening the dollar
2025-09-12 01:43:31
On Thursday (September 11), the US Dollar Index (DXY) attempted to break back above its 50-day moving average, but encountered resistance at 98.087, halting its upward trend. This downside reversal pushed the US Dollar Index below the key Fibonacci level of 97.859, which has now turned into short-term resistance, putting further downward pressure on the US Dollar.
With the release of the latest inflation and labor market data, market expectations for a Federal Reserve rate cut next week have further strengthened, accelerating the dollar's weakness. As of the latest trading session, the US dollar index fell 0.2% to 97.62, the euro rose 0.3% against the dollar to 1.1731, and the dollar fell to 147.42 against the yen.
Although CPI rose, labor market data attracted more attention
The U.S. Consumer Price Index (CPI) rose 0.4% month-over-month in August, doubling the previous month's increase and exceeding market expectations of 0.3%. Year-over-year, the inflation rate rose to 2.9%, matching expectations but the highest year-over-year increase since January.
However, a sharp surge in initial unemployment claims mitigated the impact of the CPI data on Treasury yields and the dollar. Data showed that initial jobless claims rose by 27,000 last week to 263,000, the highest level in four years and far exceeding market expectations of 235,000. This deteriorating labor market trend is increasingly becoming a central topic in Federal Reserve policy discussions. Josh Jamner of ClearBridge noted, "Current inflation data is not yet high enough to prevent the Fed from cutting interest rates by 25 basis points."
U.S. Treasury yields fell and then rebounded, affected by mixed bullish and bearish signals
The U.S. Treasury yield curve fell across the board before rebounding: the 10-year Treasury yield briefly dipped to 4.00% before recovering to 4.021%; the 2-year Treasury yield fell to 3.50%; and the 30-year Treasury yield edged down to 4.658%. The bond market remains sensitive to the dual signals of inflationary pressures and a weak labor market.
Federal funds rate futures data also reflects this mixed bullish and bearish situation: the CME Fed Watch tool shows that the market expects that at the upcoming Federal Open Market Committee (FOMC) meeting, the probability of the Federal Reserve cutting interest rates by 25 basis points is 91%-94%, and there is a 6%-9% probability of a larger rate cut of 50 basis points.
The downward trend of the US dollar index strengthens, focusing on key technical levels
(Source of US Dollar Index daily chart: Yihuitong)
From a technical perspective, the US dollar index remains under pressure: 97.859 has shifted from support to resistance, with the next key support level being this week's low of 97.253. If this level falls below, the US dollar index could fall further to its major bottom at 97.109. Currently, the US dollar index continues to trade below its 50-day moving average (98.100), and bears remain dominant below this critical threshold.
Outlook: The dollar may continue to be under pressure before the Fed meeting
While inflation data is currently stabilizing, a surge in unemployment claims underscores labor market weakness, leading traders to increasingly believe the Federal Reserve will cut interest rates by at least 25 basis points next week. U.S. Treasury yields may find some support near current levels, but unless labor market data stabilizes, the dollar index could retest support at 97.109. In the short term, the bearish outlook for the dollar is unlikely to change unless the index can clearly break through the resistance range of 97.859-98.100.
At 01:37 Beijing time, the US dollar index was at 97.5330/570, down 0.31%.
With the release of the latest inflation and labor market data, market expectations for a Federal Reserve rate cut next week have further strengthened, accelerating the dollar's weakness. As of the latest trading session, the US dollar index fell 0.2% to 97.62, the euro rose 0.3% against the dollar to 1.1731, and the dollar fell to 147.42 against the yen.
Although CPI rose, labor market data attracted more attention
The U.S. Consumer Price Index (CPI) rose 0.4% month-over-month in August, doubling the previous month's increase and exceeding market expectations of 0.3%. Year-over-year, the inflation rate rose to 2.9%, matching expectations but the highest year-over-year increase since January.
However, a sharp surge in initial unemployment claims mitigated the impact of the CPI data on Treasury yields and the dollar. Data showed that initial jobless claims rose by 27,000 last week to 263,000, the highest level in four years and far exceeding market expectations of 235,000. This deteriorating labor market trend is increasingly becoming a central topic in Federal Reserve policy discussions. Josh Jamner of ClearBridge noted, "Current inflation data is not yet high enough to prevent the Fed from cutting interest rates by 25 basis points."
U.S. Treasury yields fell and then rebounded, affected by mixed bullish and bearish signals
The U.S. Treasury yield curve fell across the board before rebounding: the 10-year Treasury yield briefly dipped to 4.00% before recovering to 4.021%; the 2-year Treasury yield fell to 3.50%; and the 30-year Treasury yield edged down to 4.658%. The bond market remains sensitive to the dual signals of inflationary pressures and a weak labor market.
Federal funds rate futures data also reflects this mixed bullish and bearish situation: the CME Fed Watch tool shows that the market expects that at the upcoming Federal Open Market Committee (FOMC) meeting, the probability of the Federal Reserve cutting interest rates by 25 basis points is 91%-94%, and there is a 6%-9% probability of a larger rate cut of 50 basis points.
The downward trend of the US dollar index strengthens, focusing on key technical levels
(Source of US Dollar Index daily chart: Yihuitong)
From a technical perspective, the US dollar index remains under pressure: 97.859 has shifted from support to resistance, with the next key support level being this week's low of 97.253. If this level falls below, the US dollar index could fall further to its major bottom at 97.109. Currently, the US dollar index continues to trade below its 50-day moving average (98.100), and bears remain dominant below this critical threshold.
Outlook: The dollar may continue to be under pressure before the Fed meeting
While inflation data is currently stabilizing, a surge in unemployment claims underscores labor market weakness, leading traders to increasingly believe the Federal Reserve will cut interest rates by at least 25 basis points next week. U.S. Treasury yields may find some support near current levels, but unless labor market data stabilizes, the dollar index could retest support at 97.109. In the short term, the bearish outlook for the dollar is unlikely to change unless the index can clearly break through the resistance range of 97.859-98.100.
At 01:37 Beijing time, the US dollar index was at 97.5330/570, down 0.31%.
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