The week that was
Another negative week for the US Dollar (USD) saw the US Dollar Index (DXY) add to the prior decline and challenge the area of multi-week troughs near 97.60, slipping further below its key 200-day Simple Moving Average (SMA).
The selling pressure on the Greenback has been driven mainly by somewhat easing tensions in the Middle East, although there is still a high degree of uncertainty surrounding the prospects for a lasting truce between the United States and Iran.
The Greenback’s retracement came amid a consolidative tone in US Treasury yields across different maturities, reflecting the back-and-forth nature of headlines surrounding the geopolitical situation.
Fed speakers lean “higher for longer” as inflation worries persist
The latest wave of Federal Reserve (Fed) commentary carried a pretty consistent message: policymakers are still much more focused on inflation risks than on delivering rate cuts anytime soon.
John Williams (New York) tried to play down the significance of recent divisions inside the Federal Open Market Committee (FOMC), arguing that disagreement is natural during periods of uncertainty and economic shocks. He continued to describe the labour market as resilient, said inflation expectations remain broadly well-anchored, and suggested tariff-related price pressure should eventually fade. Williams also hinted that interest rates may settle structurally higher than in the past, saying 3% is likely close to the long-run fed funds rate.
Alberto Musalem (St. Louis) struck one of the more hawkish tones of the week. He warned inflation remains “meaningfully” above target and suggested the balance of risks is increasingly tilting back toward inflation rather than employment. Musalem also stressed there are realistic scenarios where rates may need to stay unchanged for quite some time.
Austan Goolsbee (Chicago) sounded more nuanced but still acknowledged that progress on inflation has largely stalled. He warned that persistently high Oil prices could become a bigger issue if households and businesses start building higher inflation into expectations. Goolsbee also flagged the possibility of overheating tied to artificial intelligence (AI) investment and wealth-driven spending.
Beth Hammack (Cleveland) reinforced the broader cautious tone, arguing rates may need to stay on hold “for quite some time” given geopolitical uncertainty and stubborn price pressure. She also warned that cutting rates too early risks undoing progress on inflation.
Meanwhile, Stephen Miran (FOMC Governor) stood out with a much more dovish view, arguing the Fed should already be cutting rates and look through any energy-related inflation shocks.
Bottom line
The broader Fed message still leans toward patience and inflation vigilance rather than imminent easing. Officials broadly agree the labour market remains resilient and inflation expectations are still anchored, but there is growing concern that Oil prices, tariffs, supply disruptions and AI-driven investment booms could keep inflation pressures sticky for longer.
Markets looking for aggressive rate cuts may continue facing resistance from a Fed that increasingly sounds comfortable keeping rates elevated well into 2026.
Inflation remains well above target
As mostly expected, inflation in March posted a decent uptick, with the headline Consumer Price Index (CPI) gaining 3.3% from a year earlier, up from February’s 2.4% annual gain. The core print, which excludes more volatile items like food and energy costs, also edged higher, albeit at a more modest pace: 2.6% from 2.5%.
Geopolitical developments, particularly the spike in crude prices, have interrupted the disinflationary process seen recently. That said, this renewed uptick in inflation could still prove temporary, or at least that remains the prevailing hope among policymakers and investors.
It is expected that the inflationary landscape will turn worse before getting any better, as market participants now need to factor in the impact of the still-closed Strait of Hormuz along with the (still lagging) effects of US tariffs.
Job creation remains robust
The latest report on the US labour market showed that the economy added 115K jobs in April, surpassing initial estimates and adding to March’s 185K jobs, which were revised higher.
In addition, the Unemployment Rate held steady at 4.3%, while the Average Hourly Earnings, a proxy for wage inflation, ticked higher to 3.6% from a year earlier, up from the previous month’s 3.4% print.
What’s next for the US Dollar
Next week, US inflation is expected to remain at the centre of the debate on the US calendar, with the release of the CPI for the month of April. In addition, the usual weekly report on the US labour market should also be closely watched.
In addition, Fed officials are also expected to keep investors entertained with their comments.
All in all
The recent loss of traction of the US Dollar appears logical – and maybe expected – in light of the previous safe-haven-led surge that took place in response to the US and Israeli attacks on Iran in late February.
Returning to the pre-conflict scenario, tariffs were centre stage, with market participants increasingly worried about elevated consumer prices. Indeed, inflation remains uncomfortably high… and the labour market is cooling at a slower pace than desired.
In that scenario, the Fed would likely double down on patience, maintaining a steady stance that could, over time, offer fresh support to the US Dollar.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
