US payrolls data pushed markets to price in a more hawkish Federal Reserve. Even so, the US Dollar did not hold its gains. That suggests investors are still selling USD rallies for longer-term reasons, even as short-term US rates move higher.
Unemployment fell to 4.3%, payrolls rose by 130k, and wage growth beat expectations. Payrolls were also about double the consensus forecast of 130k.
Dollar Rally Fades After Strong Jobs Print
After the initial jump, roughly half of the USD rally quickly reversed. This drop was not linked to doubts about the jobs data. Short-term dollar rates rose and stayed high.
Markets appear to need more strong US data to support a more lasting USD rebound. Lower jobless claims alone are not expected to be enough. A higher-than-expected CPI reading could provide stronger support.
The US Dollar Index (DXY) is expected to stabilise around 97.0. The article notes it was produced with the help of an Artificial Intelligence tool and reviewed by an editor.
This looks like a familiar pattern from 2025, when a strong jobs report also failed to lift the dollar for long. The market still seems strategically bearish, treating strength as a chance to sell. That means the bar for a sustained USD recovery remains high.
Markets Look Past Jobs Data Toward CPI
Last week’s report showed payrolls beating consensus at 210,000 and unemployment steady at 3.9%. The Dollar Index (DXY) rose briefly, then settled back near 103.5. This suggests the market has already priced in a strong labour market. Traders now appear to be looking beyond jobs data for signals on Federal Reserve policy.
Attention now turns to next week’s Consumer Price Index (CPI), the next key test for the dollar. For a meaningful rally, inflation would likely need to surprise to the upside. That could force markets to push back expectations for rate cuts. Derivatives traders should note that implied volatility in pairs like EUR/USD and USD/JPY may rise ahead of the release.
With this setup, traders may look at strategies that benefit from an inflation surprise. Buying short-dated out-of-the-money call options on the DXY, or put options on EUR/USD, could be a relatively low-cost way to position for a more hawkish repricing. The VIX is near a historically low 14.5, which may signal complacency that could unwind quickly if CPI comes in hot.
On the other hand, an in-line or softer inflation print would likely reinforce the market’s tendency to sell dollar rallies. That could pull DXY back toward the 102.50 support level. This longer-term bearish bias is tied to expectations of eventual Fed easing and broader global growth trends.
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