During U.S. trading on Thursday (October 2nd), the U.S. Dollar Index (DXY) came under downward pressure, falling to a near one-week low of 97.522. This move was driven by the market's digestion of weak U.S. employment data and the ongoing government shutdown. However, the dollar rebounded in mid-morning trading, briefly turning positive despite the lack of clear fundamental drivers behind the rebound.



Weak ADP employment data drags down the dollar, and expectations of a Fed rate cut rise

After four consecutive days of decline, the dollar initially fell further on a dismal ADP employment report, which showed private sector payrolls fell by 32,000 jobs last month, compared with market expectations for a 50,000 increase. The weaker-than-expected reading fueled market speculation that the Federal Reserve could cut interest rates twice more this year.

Government shutdown complicates Fed's outlook

The government shutdown has disrupted federal data releases, preventing the market from accessing key US economic data. This has forced traders to rely more heavily on private sector indicators, such as the ADP and Challenger employment reports, which have a more pronounced impact on the market than usual. The highly anticipated non-farm payroll report, originally scheduled for Friday, will not be released as planned. Political developments have further exacerbated investor uncertainty. The Trump administration has frozen $26 billion in funds targeting Democratic-led states. Traders are also monitoring legal proceedings related to the Federal Reserve, including the Supreme Court's decision to hear Trump's attempt to remove Federal Reserve Governor Lisa Cook.

Technical support is solid, with momentum accumulating near the 50-day moving average


(Source of US Dollar Index daily chart: Yihuitong)

Despite a weaker opening, the US dollar index found technical support at 97.412 for two consecutive trading days, supported by a swing low of 97.199. A late-session rally pushed the index toward key resistance at its 50-day moving average (98.048). A break above this level could open the way for a move toward the 98.238-98.714 correction range. Last week's advance was blocked at 98.605. The dollar fell the most against the safe-haven yen, falling 0.3% to 146.69, reflecting traders' risk aversion. Supported by strong Eurozone inflation data, the euro edged up 0.18% against the dollar to 1.1751.

U.S. Treasury bonds fluctuated mildly, and market signals tended to be cautious

U.S. Treasury yields were little changed as the market assessed the impact of the data vacuum. The 10-year Treasury yield remained near 4.11%, while the 2-year yield edged up to 3.565%. This movement suggests that despite the government shutdown and weak jobs data, market expectations for interest rates haven't shifted significantly.

Market Outlook: Unless it breaks through technical levels, the dollar will remain under pressure

While Thursday's rebound surprised many, the lack of a clear catalyst leaves the dollar's trajectory uncertain. Unless the US dollar index can definitively break above its 50-day moving average (98.048), pressure from weak data and stagnant Fed guidance is likely to limit the dollar's gains. In the absence of official data, traders will remain focused on alternative data and comments from Fed officials.