The Dollar is Consolidating Ahead of the Possible Further Weakening

The Greenback is trading neutrally this week, with the U.S. Dollar index (DXY) adding 0.1% to reach 102.83 points. The EURUSD has risen at the same pace to 1.09320, indicating good market synchronization. Last Friday, the Dollar experienced a 1.3% loss as the EURUSD peaked at 1.09810, the highest level since January 12. Despite a subsequent retreat, no reversal formations have been detected, suggesting a potential further decline of the Dollar.

The primary reason for the Dollar's weakening is the cooling labor market in the United States. February Nonfarm Payrolls significantly surpassed consensus, reaching 275,000 compared to the expected 140,000. However, the unemployment rate rose to 3.9% from 3.7%, and average hourly earnings slowed down to 0.1% MoM, falling short of the expected 0.2% MoM and the 0.5% rise in January. This marks the lowest number since February 2022.

These developments had a minor effect on interest rate cut bets, which stood at 19.2% in May and 57.5% in June. The U.S. 10-year Treasuries yields fell to 4.03%, reaching the lowest level since February 2. Federal Reserve (Fed) Chair Jerome Powell, emphasizing that policymakers are unlikely to cut Fund rates until inflation is fully under control, halted a potential increase in these bets. Powell practically sacrificed unemployment targets in favor of addressing inflation, which appears to be a major concern for the regulator. U.S. February inflation data is expected in the coming days, with Wall Street anticipating mixed results.

Simultaneously, investors were withdrawing from the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU), which reported $7.8 million in net capital outflows last week. Moderate inflation numbers and declining demand for the Greenback may keep the EURUSD above the support at 1.09000-1.09300, potentially pushing the Dollar further down. The next resistance for the pair is at 1.10000-1.10300.