Dollar Softens as Traders Await Key U.S. Jobs Data and Clarify Fed Path

Key Moments

Macro Backdrop and Fed Expectations

The U.S. dollar opened the week on the back foot in Asian trade, extending its recent slide as investors continued to position for potential interest rate cuts by the Federal Reserve next year. Earlier, hawkish commentary from some Fed officials had briefly supported the currency, but overall sentiment stayed cautious ahead of key U.S. labor data and continuing global risk concerns.

The Federal Reserve recently implemented its third 25-basis-point rate reduction of the year, lowering the target range to 3.50%-3.75%. Fed Chair Jerome Powell noted that this adjustment leaves policymakers in a position to monitor new data before determining the next steps.

Market pricing, as reflected by the CME FedWatch tool, now indicates a 76% probability that interest rates will remain unchanged at the January 2026 meeting, compared with 70% before the Fed’s December decision. This shift highlights lingering uncertainty about the policy path despite the latest move.

Within the Federal Reserve, views remain cautious. Chicago Fed President Austan Goolsbee advocated for waiting for more evidence before considering further easing, while Cleveland Fed President Beth Hammack underscored the importance of maintaining sufficiently restrictive policy to contain inflation. Market participants are paying close attention to forthcoming comments from Fed Governor Stephen Miran and New York Fed President John Williams for additional policy clarity.

U.S. Labor Data and Global Risk Sentiment

The spotlight now turns to U.S. labor market releases due Tuesday, including Nonfarm Payrolls, Average Hourly Earnings, and the Unemployment Rate. Strong readings could curb expectations for near-term rate cuts and lend support to the dollar. Conversely, softer figures would likely bolster the case for easier policy, potentially adding to recent dollar weakness.

At the same time, broader global risk events continue to weigh on sentiment. Periods of heightened uncertainty often see investors gravitate toward defensive positioning, which can underpin demand for traditional safe-haven assets such as the U.S. dollar, even as it has recently shown signs of softness.

Technical Picture: U.S. Dollar Index (DXY)

The U.S. Dollar Index (DXY) is trading around 98.35 on the 4-hour timeframe, extending its decline within a well-defined descending channel. Price action near the lower boundary of this channel is characterized by small-bodied candlesticks, indicating that downside momentum is easing, though not yet signaling a confirmed reversal.

The index remains below the 50-EMA at 99.20 and the 100-EMA near 99.30, leaving short-term control with sellers. The broader downtrend took hold after the DXY was rejected from the 100.80-101.00 region in late November, resulting in a series of lower highs aligned with a descending trendline.

On the downside, the first notable support sits at 98.10, followed by 97.80, a prior swing low. A breakdown below these levels could clear the way for a move toward 97.45. On the upside, resistance is located at 98.95 and 99.30. The RSI near 40 points to subdued momentum without reaching oversold territory, which is consistent with a bias toward consolidation or a mild corrective bounce rather than a full trend reversal.

GBP/USD: Uptrend Holds Within Ascending Channel

GBP/USD is trading close to $1.3360 on the 4-hour chart, having pulled back from recent highs but remaining within a clearly established ascending channel. Recent candles feature smaller bodies and overlapping ranges, indicating consolidation rather than a shift to a bearish trend. The pair is holding just above the channel’s midline, suggesting that buyers are still stepping in on dips.

The broader structure remains positive, supported by a rising trendline that has been intact since late November. GBP/USD continues to trade above the 50-EMA near $1.3310 and the 100-EMA around $1.3240, reinforcing the constructive outlook. A Fibonacci retracement places the 38.2% level near $1.3330, which aligns with current prices and adds technical significance to that area.

On the topside, resistance is seen at $1.3425, followed by $1.3470. A break above these levels could open the way toward $1.3510. On the downside, a move below $1.3330 would expose support at $1.3285 and $1.3235. The RSI around 55 signals that momentum has cooled yet does not indicate a bearish shift, in line with a consolidation phase within a prevailing uptrend.

EUR/USD: Holding Gains After Breakout

EUR/USD is trading near $1.1735 on the 4-hour chart after breaking out of a multi-week ascending formation and transitioning into a short consolidation period. Recent candlesticks display smaller bodies with limited follow-through, reflecting hesitation following a sharp prior advance rather than renewed selling pressure.

The pair is currently trading above the former breakout zone around $1.1720, which is now acting as immediate support. The broader trend remains positive, backed by a rising trendline from late November. EUR/USD is also above the 50-EMA at $1.1685 and the 100-EMA near $1.1620, underscoring a bullish technical structure.

A Fibonacci extension projects resistance in the $1.1760-$1.1800 band. A break below $1.1720 could open a deeper pullback toward $1.1685 and $1.1650. The RSI near 65 points to firm momentum without entering overbought territory, favoring a period of consolidation before the next significant directional move.