Weak ADP employment data boosted expectations of a Federal Reserve rate cut, putting downward pressure on the dollar index.
2025-12-04 00:46:11
On Wednesday (December 3), the US dollar index encountered significant selling pressure during the European session, with a clear downtrend. After breaking below the key support level of 99.117 (the 50-day moving average), this level has now become a new resistance level; subsequently, it further broke below the low of 98.991, further strengthening the downward momentum. Against the backdrop of continuously declining Treasury yields and strong market bets on another rate cut by the Federal Reserve next week, the dollar lacks substantial fundamental support.
The weak ADP non-farm payroll data was the direct trigger for the dollar's decline. The data showed that private sector employment in the US decreased by 32,000, far below market expectations. This led bullish investors to adopt a wait-and-see approach, further reinforcing market perceptions that the labor market was cooling faster than anticipated.
Commerzbank currency analyst André Prefk noted that if the November ADP employment data falls short of expectations, it could have a slight negative impact on the dollar; however, official labor market reports and the Federal Reserve's future monetary policy direction are the key factors determining the dollar's trajectory.
Fundamental Analysis: Bets on Interest Rate Cuts Continue to Rise
Following the release of the ADP data, yields on all maturities of U.S. Treasury bonds declined across the board—a move that has a key impact on the dollar index, as falling U.S. asset yields typically weaken market demand for the dollar. The 10-year Treasury yield fell to 4.065%, and the 2-year Treasury yield retreated to 3.486%, reflecting growing market confidence that the Federal Reserve will implement easing policies.
Interest rate expectations remain the core factor driving the dollar's trajectory. Federal funds rate futures data show that the market is currently pricing in a near 90% probability of a 25 basis point rate cut by the Federal Reserve next week, following previous rate cuts in September and October. Comments from Fed Governor Waller further reinforced this expectation, stating that the current weakness in the labor market is sufficient to support another rate cut, keeping dollar bears active. Historical data shows that when traders have clear expectations of policy easing, the dollar often faces depreciation pressure.
Political uncertainty also poses a potential drag on the dollar. Analysts warn that the prospect of Kevin Hassett becoming Federal Reserve Chairman in 2026, a potential "shadow chairman" move, could complicate future policy communications within the Fed. And policy uncertainty is generally detrimental to a stronger dollar.
Foreign exchange market flows: Funds shift to non-US dollar currencies
Cross-currency capital flows are clearly trending downwards: the pressure on the dollar is providing support for almost all other major currencies. As the dollar index declines, traders continue to reduce their long dollar positions and flow into currencies with clearer policy paths. As long as market expectations for a Fed rate cut remain unchanged, dollar bears will continue to firmly push forward the current trend.
Yields and Risk Appetite: Rising Treasury Bonds Further Weigh on the Dollar
Following the release of the ADP data, the Treasury market saw buying support, and lower yields further intensified downward pressure on the US dollar. The bond market's performance indicates investor confidence in further easing policies from the Federal Reserve. If subsequent data releases, such as the ISM non-manufacturing PMI or initial jobless claims, are weak, Treasury yields may decline further, and the US dollar index will also weaken accordingly.
Technical Analysis: Bears Control the Market Below Key Moving Averages
(US Dollar Index Daily Chart Source: FX678)
From the daily chart, after the US dollar index broke below the 50-day moving average of 99.117, this level has become an immediate resistance level, with further resistance at the 200-day moving average of 99.597. If the index continues to fall below the low of 98.991, it will open up downside potential to 98.565. The key support area afterward is the Fibonacci retracement range of 98.307-97.814, which is also the next target area that the bears may be aiming for.
Conclusion: The short-term bearish outlook remains unchanged.
The short-term bearish outlook for the US dollar index remains unchanged, influenced by multiple factors including lower Treasury yields, the Federal Reserve's firm commitment to interest rate cuts, and the dollar index trading below key moving averages. Unless subsequent economic data significantly challenges the current accommodative policy narrative, bears will continue to dominate the market.
The weak ADP non-farm payroll data was the direct trigger for the dollar's decline. The data showed that private sector employment in the US decreased by 32,000, far below market expectations. This led bullish investors to adopt a wait-and-see approach, further reinforcing market perceptions that the labor market was cooling faster than anticipated.
Commerzbank currency analyst André Prefk noted that if the November ADP employment data falls short of expectations, it could have a slight negative impact on the dollar; however, official labor market reports and the Federal Reserve's future monetary policy direction are the key factors determining the dollar's trajectory.
Fundamental Analysis: Bets on Interest Rate Cuts Continue to Rise
Following the release of the ADP data, yields on all maturities of U.S. Treasury bonds declined across the board—a move that has a key impact on the dollar index, as falling U.S. asset yields typically weaken market demand for the dollar. The 10-year Treasury yield fell to 4.065%, and the 2-year Treasury yield retreated to 3.486%, reflecting growing market confidence that the Federal Reserve will implement easing policies.
Interest rate expectations remain the core factor driving the dollar's trajectory. Federal funds rate futures data show that the market is currently pricing in a near 90% probability of a 25 basis point rate cut by the Federal Reserve next week, following previous rate cuts in September and October. Comments from Fed Governor Waller further reinforced this expectation, stating that the current weakness in the labor market is sufficient to support another rate cut, keeping dollar bears active. Historical data shows that when traders have clear expectations of policy easing, the dollar often faces depreciation pressure.
Political uncertainty also poses a potential drag on the dollar. Analysts warn that the prospect of Kevin Hassett becoming Federal Reserve Chairman in 2026, a potential "shadow chairman" move, could complicate future policy communications within the Fed. And policy uncertainty is generally detrimental to a stronger dollar.
Foreign exchange market flows: Funds shift to non-US dollar currencies
Cross-currency capital flows are clearly trending downwards: the pressure on the dollar is providing support for almost all other major currencies. As the dollar index declines, traders continue to reduce their long dollar positions and flow into currencies with clearer policy paths. As long as market expectations for a Fed rate cut remain unchanged, dollar bears will continue to firmly push forward the current trend.
Yields and Risk Appetite: Rising Treasury Bonds Further Weigh on the Dollar
Following the release of the ADP data, the Treasury market saw buying support, and lower yields further intensified downward pressure on the US dollar. The bond market's performance indicates investor confidence in further easing policies from the Federal Reserve. If subsequent data releases, such as the ISM non-manufacturing PMI or initial jobless claims, are weak, Treasury yields may decline further, and the US dollar index will also weaken accordingly.
Technical Analysis: Bears Control the Market Below Key Moving Averages
(US Dollar Index Daily Chart Source: FX678)
From the daily chart, after the US dollar index broke below the 50-day moving average of 99.117, this level has become an immediate resistance level, with further resistance at the 200-day moving average of 99.597. If the index continues to fall below the low of 98.991, it will open up downside potential to 98.565. The key support area afterward is the Fibonacci retracement range of 98.307-97.814, which is also the next target area that the bears may be aiming for.
Conclusion: The short-term bearish outlook remains unchanged.
The short-term bearish outlook for the US dollar index remains unchanged, influenced by multiple factors including lower Treasury yields, the Federal Reserve's firm commitment to interest rate cuts, and the dollar index trading below key moving averages. Unless subsequent economic data significantly challenges the current accommodative policy narrative, bears will continue to dominate the market.
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