The Fed's hawkish stance and weak employment data fueled a rebound in the dollar index.
2026-02-05 13:50:40
The US dollar index rose for the second consecutive trading day during Thursday's Asian trading session, currently hovering around 97.80. The dollar's recent strength is mainly supported by expectations of Federal Reserve policy changes and divergent economic data.
On the Federal Reserve front, Governor Lisa Cook's latest remarks have reinforced market expectations for a gradual interest rate cut path. She pointed out that she would not support further rate cuts until inflation has clearly subsided, and emphasized that the current focus is more on the issue of stagnant inflation than on a weak labor market.
This stance was interpreted by the market as a hawkish signal, providing support for the dollar. Furthermore, the nomination of Kevin Warsh, a candidate for the next Federal Reserve Chairman, also provided potential support for the dollar.
The market believes Warsh favors maintaining a relatively small balance sheet and taking a cautious approach to interest rate cuts, meaning the Fed may not cut rates quickly. Although President Trump stated he wouldn't have been nominated if Warsh supported rate hikes, and emphasized that US interest rates are "too high" and there's still room for rate cuts, the overall hawkish outlook is still driving the dollar higher in the short term.
On the economic data front, the January ADP employment figures were released, showing that private sector employment increased by only 22,000, far below the market expectation of 48,000 and also lower than the previous figure of 37,000 (revised to 41,000), reflecting a slowdown in labor market growth. This weak employment data, given the delayed release of the official employment report, carries greater significance for the market.
The ISM Services Index remained stable at 53.8, slightly higher than the expected 53.5, indicating that the service sector continued its expansion, but there was structural divergence in economic growth. Overall, the Fed's hawkish policy, expectations of a strong dollar, and divergent economic data supported the dollar's short-term upward trend, but weak job growth may limit its long-term strength.
From the daily chart, the US dollar index has continued its recent rebound, steadily breaking through the key resistance level of 97.50 and consolidating above the short-term moving averages. The moving average system shows that the short-term moving averages are trending upwards and the medium-term moving averages are aligned positively, indicating that the daily trend for the US dollar remains bullish, but the upward momentum is showing signs of slowing.
In terms of momentum indicators, the RSI remains in the neutral-to-high range, indicating that the bulls still have the upper hand in the short term, but it has not yet reached an overbought state, meaning that the rebound still has some room to continue. The MACD indicator remains above the zero axis, and the histogram is slightly converging, indicating that momentum still exists but short-term consolidation is possible.
Technical analysis indicates that the area around 97.80 is the upper resistance level of the recent consolidation range. If the US dollar index effectively holds above and breaks through this area, the next target could be the previous high around 98.20. Conversely, if the upward momentum is blocked, the price may fall back to the short-term support area of 97.30-97.50.
Editor's Note:
The recent movement of the US dollar index has been influenced by both hawkish expectations surrounding the Federal Reserve's policy and divergent economic data. In the short term, the bulls have the upper hand and are showing significant strength, but weak employment data suggests that downward pressure on the economy remains, limiting the dollar's continued rapid rise.
Pay attention to speeches by Federal Reserve officials and the upcoming official employment data, as these factors will determine whether the dollar index can maintain its current strength or enter a period of high-level fluctuation.
On the Federal Reserve front, Governor Lisa Cook's latest remarks have reinforced market expectations for a gradual interest rate cut path. She pointed out that she would not support further rate cuts until inflation has clearly subsided, and emphasized that the current focus is more on the issue of stagnant inflation than on a weak labor market.
This stance was interpreted by the market as a hawkish signal, providing support for the dollar. Furthermore, the nomination of Kevin Warsh, a candidate for the next Federal Reserve Chairman, also provided potential support for the dollar.
The market believes Warsh favors maintaining a relatively small balance sheet and taking a cautious approach to interest rate cuts, meaning the Fed may not cut rates quickly. Although President Trump stated he wouldn't have been nominated if Warsh supported rate hikes, and emphasized that US interest rates are "too high" and there's still room for rate cuts, the overall hawkish outlook is still driving the dollar higher in the short term.
On the economic data front, the January ADP employment figures were released, showing that private sector employment increased by only 22,000, far below the market expectation of 48,000 and also lower than the previous figure of 37,000 (revised to 41,000), reflecting a slowdown in labor market growth. This weak employment data, given the delayed release of the official employment report, carries greater significance for the market.
The ISM Services Index remained stable at 53.8, slightly higher than the expected 53.5, indicating that the service sector continued its expansion, but there was structural divergence in economic growth. Overall, the Fed's hawkish policy, expectations of a strong dollar, and divergent economic data supported the dollar's short-term upward trend, but weak job growth may limit its long-term strength.
From the daily chart, the US dollar index has continued its recent rebound, steadily breaking through the key resistance level of 97.50 and consolidating above the short-term moving averages. The moving average system shows that the short-term moving averages are trending upwards and the medium-term moving averages are aligned positively, indicating that the daily trend for the US dollar remains bullish, but the upward momentum is showing signs of slowing.
In terms of momentum indicators, the RSI remains in the neutral-to-high range, indicating that the bulls still have the upper hand in the short term, but it has not yet reached an overbought state, meaning that the rebound still has some room to continue. The MACD indicator remains above the zero axis, and the histogram is slightly converging, indicating that momentum still exists but short-term consolidation is possible.
Technical analysis indicates that the area around 97.80 is the upper resistance level of the recent consolidation range. If the US dollar index effectively holds above and breaks through this area, the next target could be the previous high around 98.20. Conversely, if the upward momentum is blocked, the price may fall back to the short-term support area of 97.30-97.50.
Editor's Note:
The recent movement of the US dollar index has been influenced by both hawkish expectations surrounding the Federal Reserve's policy and divergent economic data. In the short term, the bulls have the upper hand and are showing significant strength, but weak employment data suggests that downward pressure on the economy remains, limiting the dollar's continued rapid rise.
Pay attention to speeches by Federal Reserve officials and the upcoming official employment data, as these factors will determine whether the dollar index can maintain its current strength or enter a period of high-level fluctuation.
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