The US Dollar Index (DXY) slipped to around 96.80 in Asian trading on Thursday, against a basket of six major currencies. US weekly Initial Jobless Claims are due later on Thursday, and the CPI inflation report is due on Friday.
December Retail Sales missed forecasts on Tuesday. The index also came under pressure after comments on Monday from White House economic adviser Kevin Hassett. He said job gains could slow in the coming months because the labour force is growing more slowly and productivity is rising.
Labor Data And Fed Tone
US labour data on Wednesday supported the dollar. The Bureau of Labor Statistics reported that 130,000 jobs were added in January, above the 70,000 consensus. The Unemployment Rate fell to 4.3% from 4.4%, beating the 4.4% forecast.
Cleveland Fed President Beth Hammack said the Unemployment Rate is stabilising after the January nonfarm payrolls report. Kansas City Fed President Jeff Schmid said rates should stay restrictive to keep inflation moving down. He also said there are few signs of slowing in the data.
Markets now price in about a 94% chance of no Fed rate change at the next meeting, up from 80% the day before, according to CME FedWatch.
This time last year, the US Dollar Index was also near 96.80, and the signals were mixed. Retail sales were weaker, but the January 2025 jobs report surprised markets with 130,000 new positions. At the time, the key question was whether the Federal Reserve would keep rates high to fight inflation.
Shifting Outlook For Rates
Today, the story looks very different. Headline inflation cooled to 2.1% in the latest January 2026 report, suggesting the inflation fight is mostly over. Now the bigger worry is slower growth, after restrictive policy was kept in place through 2025.
The January 2026 jobs report was much weaker, with just 85,000 jobs added and the unemployment rate rising to 4.5%. That is a sharp shift from the stronger labour market seen a year earlier. This slowdown gives the Fed a clear reason to consider easing policy sooner.
Last year, markets were about 94% certain the Fed would hold rates. Now, the CME FedWatch Tool shows a 65% chance of a rate cut by the June 2026 meeting. This shift suggests derivative traders should expect more volatility in interest rate futures and in currency pairs such as EUR/USD. Buying straddles or strangles on dollar-linked assets may be a sensible way to trade the uncertainty around when the first cut happens.
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