The U.S. Dollar Index (DXY), which measures the greenback's value against six major currencies, is currently trading sideways around 97.60. With the U.S. labor market weakening and expectations growing for the Federal Reserve's first interest rate cut of the year, the dollar is under pressure.

Traders expect the Fed to cut interest rates by 25 basis points at its September meeting, with a small probability of a 50 basis point cut. The market also expects the Fed to continue easing until 2026 to prevent the risk of a potential recession.

Recent U.S. labor data further reinforced expectations of a rate cut: weekly initial jobless claims rose to the highest level since October 2021, coupled with weak non-farm payroll data, which outweighed the unexpected performance of the consumer price index.

According to market research, both Morgan Stanley and Deutsche Bank expect the Federal Reserve to cut interest rates three times this year, by 25 basis points each at the September, October and December meetings, to respond to easing inflationary pressures.

Markets are also watching to see whether Trump's economic advisor Stephen Miran will be appointed to the Fed's board of governors before the central bank's policy meeting. Senate Republican leaders have scheduled a full Senate vote on his confirmation for Monday evening, a move that could have a significant impact on market sentiment.

From a technical perspective, the US dollar index is currently hovering around 97.60, with the short-term moving averages (10-day and 20-day moving averages) showing a slight downward trend, indicating short-term pressure. The RSI indicator has fallen from a neutral to high level to around 50, suggesting that bullish and bearish forces are relatively balanced, but downward momentum is gradually building.

If the US dollar index falls below the 97.40 support level, it may further retest the 97.00 or even 96.50 levels. Conversely, if it holds and breaks through the 98.00 resistance level, it may resume its upward trend and test the 98.50 level. Overall, the DXY will remain range-bound in the short term, but the downward momentum will slightly prevail.

Editor's Note: The key reason for the short-term pressure on the US dollar index is rising expectations of Fed policy easing and signs of weakness in the US job market. If the Fed cuts interest rates as expected, the DXY could fall further to around 97 or even test 96.50.

The market should remain on the sidelines before the Federal Reserve meeting this week and pay attention to the direct impact of policy signals on the US dollar trend.