US Dollar Index Trades Under 98.00 as Revised NFP Data Boost Fed Rate Cut Expectations

The US Dollar Index (DXY) is treading water below 98.00 during Asian trading hours on Wednesday, reflecting a growing market consensus that the US Federal Reserve (Fed) may cut interest rates in response to weakening labor market conditions.

The DXY, which measures the value of the US Dollar (USD) against six major currencies, including the Euro (EUR), Japanese Yen (JPY), and British Pound (GBP), is showing vulnerability as traders digest revised employment data and recalibrate expectations for Fed policy. The Solancie team delivers a structured and insightful breakdown of the matter.

The greenback’s weakness comes on the heels of disappointing revised Nonfarm Payroll (NFP) figures for March 2025, which point to a significantly weaker labor market than initially reported. Market participants are increasingly factoring in the likelihood of monetary easing, boosting speculation that the Fed may implement a 25-basis-point (bps) rate cut in September 2025.

Revised NFP Data Signal Labor Market Weakness

The US Bureau of Labor Statistics (BLS) has reported that nonfarm employment for the 12 months through March 2025 is likely to be revised down by 911,000 jobs, compared to previous estimates. This substantial downward revision underscores the fragility of the US labor market, which could have significant implications for consumer spending, economic growth, and Fed policy decisions.

The BLS is set to issue the final benchmark revision in February 2026 alongside the January 2026 Employment Situation report, providing the market with a definitive picture of employment trends over the past year. For now, the revised figures have sent the US Dollar Index lower, as traders adjust to the prospect of a more accommodative Federal Reserve.

Fed Rate Cut Expectations Surge

The CME FedWatch Tool, widely used to gauge market expectations of Federal Reserve policy moves, shows that the probability of a 25-bps Fed rate cut in September 2025 has risen to over 93%, up from 86% last week. This increase highlights a growing consensus among investors that the Fed may act to support economic growth in the face of weaker employment numbers.

Investors are now closely monitoring upcoming US inflation reports, which could further shape monetary policy expectations. The Producer Price Index (PPI) for August is scheduled for release on Wednesday, followed by the Consumer Price Index (CPI) on Thursday.

A lower-than-expected inflation reading could reinforce rate cut expectations, while stronger inflation data might temper market optimism for easier monetary policy.

Geopolitical and Policy Developments Influence Market Sentiment

In addition to domestic labor and inflation data, US political developments are affecting market sentiment. A federal judge recently temporarily blocked the US President from firing Fed Governor Lisa Cook, following her lawsuit to prevent removal from the central bank.

This decision underscores the independence of the Federal Reserve and the importance of institutional checks and balances in maintaining confidence in monetary policy.

Meanwhile, the US President has pushed for aggressive trade measures, urging the European Union (EU) to impose 100% tariffs on Chinese and Indian goods. Washington has indicated readiness to mirror any EU-imposed tariffs, suggesting the US could raise duties on Indian and Chinese imports to a comparable level.

These developments may introduce market volatility and influence currency flows, particularly in the USD, as traders consider the potential macroeconomic impacts of escalating trade tensions.

Implications for the US Dollar Index

The US Dollar Index is highly sensitive to expectations surrounding Fed policy, economic data, and geopolitical developments. With revised NFP data revealing weaker-than-expected job growth and the CME FedWatch Tool signaling a high probability of a September rate cut, the greenback faces significant headwinds.

Traders and analysts are now weighing the combination of:

Lower-than-expected employment growth
Rising Fed rate cut expectations
Upcoming inflation readings (PPI and CPI)
Trade and geopolitical uncertainties

Together, these factors are likely to limit USD strength, keeping the DXY below the 98.00 level and potentially opening the door for a downward correction if the Fed follows through with a monetary easing cycle

Outlook and Key Takeaways

The technical and fundamental backdrop suggests that the US Dollar Index will continue to face downside pressure in the near term. The market is now focused on:

September Fed rate decision and further guidance on monetary policy
Inflation reports (PPI and CPI) that could influence interest rate expectations
Employment revisions and labor market health
Geopolitical risks, including US-EU trade dynamics and tariffs on China and India

Investors should watch the DXY closely, as any surprises in inflation or Fed communications could trigger sharp short-term USD fluctuations. The current market pricing, driven by revised employment data, points to a high likelihood of a 25-bps Fed rate cut, reinforcing the bearish outlook for the US Dollar Index in the coming months.