The US dollar could face new challenges if the upcoming US payrolls data falls short of expectations. This might lead to a greater chance of a Federal Reserve rate cut in September. A disappointing nonfarm payrolls report could support the idea of a potential 50-basis-point rate cut during the Fed’s meeting on September 17. Right now, markets predict a 25-basis-point cut this month and over 100 basis points of easing by September 2026. Only a strong jobs report might change the Fed’s decision on rate cuts next month. The nonfarm payrolls report is scheduled for release on Friday, September 5, at 8:30 am US Eastern time. As we await the crucial Nonfarm Payrolls (NFP) report this Friday, September 5th, we’re looking for signs of a slowing labor market. A disappointing jobs figure would likely confirm a Federal Reserve rate cut on September 17th, potentially even a larger cut of 50 basis points. This would put significant downward pressure on the US dollar. Job growth has been declining over the past year, and the July 2025 report was revised down to just 141,000 jobs. The market expects a modest increase of 150,000 for August, so any number under 120,000 would be seen as a major miss. This would strengthen the view that the economy is slowing, as shown by weaker ISM manufacturing data from last month. The fed funds futures market predicts a 92% chance of a 25-basis-point cut this month. This outlook increased after the July CPI inflation reading showed a low 2.7%. Since a cut is widely anticipated, the key question is how large that cut might be and how the market will react. Looking back to 2019, a similar Fed pivot led to a long rally in stocks and a weaker dollar. Traders should prepare for increased volatility in the US dollar. Buying put options on the US Dollar Index (DXY) that expire after the Fed meeting could provide a way to benefit from a drop in the dollar while keeping risk low. Or, traders could consider going long on call options in currency pairs like EUR/USD or GBP/USD for similar exposure. For those focused on interest rates, purchasing call options on Treasury bond futures (like the ZN or ZB) is a direct way to profit from falling yields in response to a weak jobs report. These contracts would gain value if the market expects more aggressive and prolonged rate cuts from the Fed. A disappointing jobs number would likely lead to a sharp drop in the 2-year Treasury yield. On the other hand, if the jobs report comes in stronger than expected—perhaps over 225,000—it could undermine the rate-cut narrative and cause a brief spike in the dollar. To hedge against this possibility, buying inexpensive, out-of-the-money put options on major stock indices could be a smart move. If the Fed has to delay rate cuts, it could trigger a sell-off in stocks.

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