The US Dollar is trading close to its high from yesterday. The dollar index (DXY) is only 0.3% below its average over the last 200 days. The December ADP employment report and the November JOLTS report are important for economic policy. Predictions suggest private payrolls will rise to +50k, up from -32k in November.

Labour Demand Challenges

In recent months, there has been an average loss of 13,000 jobs, indicating issues with job demand. Further drops in JOLTS hiring and quit rates could show that labor conditions are getting worse. This supports predictions of 50 basis point cuts in Fed funds futures for 2026, which could impact the USD. The US December ISM services index is expected to show strong activity in the service sector, with a headline index of 52.2, down slightly from 52.6 in November. A drop in the prices paid sub-index could strengthen the case for more rate cuts by the Fed.

FXStreet Insights Team Observations

This information comes from the FXStreet Insights Team, which includes insights from both analysts and external experts. As we look back at the end of 2025, the market rightly focused on weak labor demand as a reason for future rate cuts. The December 2025 jobs data confirmed this, with Non-Farm Payrolls at only 90,000, much lower than expected. This followed a trend in the November 2025 JOLTS data, which showed job openings at an 18-month low of 8.5 million. These numbers provided the Federal Reserve with the evidence needed to adopt a more dovish stance, reinforcing expectations for rate cuts in 2026. Additionally, the December ISM services index supported this view as the prices paid component fell to its lowest level since 2023, indicating that inflation is calming down. This shift resulted in the market moving from anticipating 50 basis points in cuts to now expecting at least 75 basis points of easing this year. This change has put pressure on the US Dollar, causing the DXY to struggle to bounce back above its 200-day moving average after dropping below it in late December. For traders, this scenario makes short-dollar positions appealing against currencies with central banks that are more hawkish. Options could be a good way to approach this, like buying puts on the dollar index or selling call spreads to benefit from limited upside. With high chances of rate cuts starting at the March meeting, interest rate derivatives provide a direct way to position for this. Eurodollar or SOFR futures contracts can help lock in lower rates expected for the second half of 2026. The key will be choosing the right time to enter, as much of this easing is already reflected in the market. Create your live VT Markets account and start trading now.

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