US Dollar Forecast: July Fed Cut Back in Play After Weak Jobs, Inflation Data

US Dollar, Fed Key Points

Initial jobless claims remain relatively elevated, while both CPI and PPI came in below expectations.
Continued yellow flags on inflation and the labor market could prompt the Fed to cut interest rates as soon as July.
The US Dollar Index (DXY) is testing minor support at 97.70, its lowest level since March 2022, and a break below that level could see the selloff accelerate from here.

Is the long-awaited slowdown in the US economy finally at hand? This morning’s economic data certainly raises some yellow flags heading into the summer!

Initial jobless claims held steady at 248K for the week ending June 7, marking the second consecutive week near an 8-month high and exceeding economists’ expectations. Perhaps more to the point, continuing claims rose to 1.956 million, the highest since November 2021, suggesting that unemployed individuals are facing increased difficulty finding new jobs.

The labor market data over the last couple of weeks paints a clear picture: While layoffs haven’t surged (yet), hiring has slowed considerably, indicating a softening labor market. This slowdown is further evidenced by declining nonfarm payroll growth and downward revisions to prior months' employment data.

Simultaneously, this morning’s wholesale inflation data showed signs of easing. The Producer Price Index (PPI) rose just 0.1% in May—below the 0.2% forecast—while core PPI, excluding food and energy, also increased by 0.1%, undercutting the 0.3% estimate. Year-over-year, the PPI rose 2.6% and core PPI 3.0%, both slightly below expectations.

These developments bolster expectations that the recently noncommittal Federal Reserve may adopt a more dovish monetary stance, with traders now pricing in about a 25% chance of an interest rate cut in July, though the Fed is all but certain to leave rates unchanged at its meeting next week:

Source: CME FedWatch

US Dollar Technical Analysis: US Dollar Index Daily Chart

Source: TradingView, StoneX

Perhaps not surprisingly after this morning’s 1-2 punch of soft economic data, the US Dollar is the weakest major currency on the day. As we go to press, the US Dollar Index (DXY) is testing minor support at 97.70, its lowest level since March 2022. As the 14-day RSI in the lower panel shows, the index is far from oversold territory, hinting that the breakdown may have further to run after a low conviction bounce in May.

Below 97.70, there’s little in the way of meaningful support until the next long-term Fibonacci retracement just below 95.00, though we’re likely to see near-term bounces along the way even if that level ultimately comes into play. Only a reversal back above the year-to-date bearish trend line (currently around 99.00) would erase the near-term bearish bias for the world’s reserve currency.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.