US Dollar Forecast: Higher as Strong ADP Jobs Report Pressures Gold and Euro

Dollar Index Climbs to Three-Week High on Strong U.S. Jobs Data

The U.S. Dollar Index (DXY) surged to a three-week high on Wednesday, reaching 101.69, as stronger-than-expected private payroll data fueled optimism about the U.S. economy.

The ADP National Employment Report showed that private payrolls increased by 143,000 jobs in September, surpassing economists’ forecast of 120,000. This strong labor market data comes ahead of the critical nonfarm payrolls (NFP) report on Friday, which could further shape market expectations for Federal Reserve policy.

At 18:29 GMT, the U.S. Dollar Index (DXY) is trading 101.659, up 0.450 or +0.44%.

Technically, the DXY seems to have enough upside momentum to challege the downtrending 50-day moving average at 101.909. Overcoming this indicator will be a sign of strength. Additionally, taking out the swing top at 101.917 will change the trend to up. This will put the 200-day moving average at 103.723 on the radar.

Treasury Yields Rise as Investors Weigh U.S. Economic Strength

U.S. Treasury yields moved higher following the ADP report, reflecting growing confidence in the U.S. economy. The yield on the 10-year Treasury note increased by 4 basis points to 3.783%, while the 2-year yield gained nearly 2 basis points to 3.635%. Investors are now closely watching Friday’s NFP report, which could reinforce the Fed’s cautious approach to future rate cuts.

Fed Chairman Jerome Powell has indicated that further rate cuts this year will depend on the strength of economic data. Despite the recent 50-basis-point rate cut, Powell stressed that the central bank is unlikely to pursue aggressive cuts unless data supports such moves.

Traders are now pricing in a 34% probability of another 50-basis-point cut at the Fed’s November meeting, down from 57% a week ago, according to the CME Group’s FedWatch Tool.

Geopolitical Tensions Support Dollar Strength

The dollar’s gains have also been supported by rising geopolitical tensions in the Middle East. Iran launched a missile strike on Israel on Tuesday, prompting concerns about a broader conflict that could disrupt global markets, particularly in the oil-producing region. While Iran indicated that its attack had ended, Israel and the U.S. have vowed to retaliate if further provoked. These developments have driven safe-haven demand, benefiting the dollar as traders seek stability.

Gold Pauses Rally as Dollar Strengthens

Gold prices retreated slightly on Wednesday, with spot gold dipping 0.5% to $2,649.41 per ounce, following a strong rally the previous day. The strengthening U.S. dollar, fueled by robust labor market data, weighed on gold as the greenback’s rise made dollar-denominated bullion more expensive for international buyers.

However, geopolitical risks in the Middle East continued to support gold’s safe-haven appeal. Traders remain cautious, with many expecting prices to climb if tensions escalate, particularly if Israel retaliates against Iran. In the near term, gold’s movement will be influenced by U.S. economic data and developments in global conflicts.

Euro and Yen Weaken Against the Dollar

The euro fell to $1.1032, its lowest since mid-September, as the dollar strengthened. In addition to dollar strength, the euro is under pressure from expectations that the European Central Bank may cut interest rates in the coming months as inflation continues to recede in the Eurozone. Meanwhile, the yen weakened after Japanese Prime Minister Shigeru Ishiba suggested that Japan is not positioned for further rate hikes, allowing the dollar to rise to 145.73 yen.

Market Forecast

In the short term, the U.S. Dollar Index is likely to remain elevated, driven by strong labor market data and reduced expectations for aggressive Fed rate cuts.

Friday’s nonfarm payrolls report will be a key indicator—if it shows continued strength in the U.S. job market, the dollar could push higher. Additionally, continued geopolitical tensions in the Middle East may sustain demand for the dollar as a safe haven.

However, any signs of weaker U.S. employment data or easing geopolitical risks could temper the dollar’s upward momentum. Traders should keep a close eye on upcoming economic reports and geopolitical developments.