JOLTS Report Confuses the Dollar (DXY).. Is the Fed Changing Its Course

Written by: Rania Gule, Senior Market Analyst at XS.com – MENA

It seems that the U.S. dollar is facing significant pressure at the moment, as it has fallen against most major currencies following the release of the U.S. Job Openings and Labor Turnover Survey (JOLTS) report for December, which revealed numbers lower than expected. With the U.S. Dollar Index (DXY) dropping to the 108.00 level, markets are pricing in the continued contraction in the labour market, which may reflect an economic slowdown that could influence the Federal Reserve’s policies shortly. These developments, in my view, indicate that the strength of the dollar may not last long given these economic conditions.
The JOLTS report showed that the number of job openings in the U.S. decreased significantly, with the actual figure coming in at 7.6 million versus the expected 8 million. In my opinion, this data comes at a critical time, as this decline signals a drop in demand for labour, which in turn reflects a recessionary pressure in some sectors of the U.S. economy. While these numbers may not necessarily imply a broad slowdown in the economy as a whole, the indication of a slowdown in hiring may weaken confidence in sustainable economic growth.

Therefore, I believe that this drop in job openings is not isolated from other negative economic data, as we also saw a decline in factory orders for December by 0.9%, which was worse than the expected 0.7% decline and deeper than the 0.4% drop in the previous month. This data reflects weakness in the industrial sector, adding to a series of negative indicators that strengthen concerns about a potential economic slowdown. With these concerns growing, pressure on the U.S. dollar has begun to increase noticeably.

In my view, the Federal Reserve may need to reassess its monetary policies more cautiously. Following this data, expectations for an interest rate cut have gained strength, with the likelihood of keeping rates unchanged at the next meeting in March rising to 86.5%. This trend could lead to further declines in U.S. Treasury yields, contributing to the decline of the dollar as markets price in less tightening from the Fed.

On the other hand, the market’s reaction to global news seems to be following a parallel path. U.S. President Trump announced new tariffs on Chinese goods, while China responded by imposing its tariffs on American products. These trade skirmishes could indirectly impact global markets, adding more uncertainty about the future of the U.S. economy, and further exerting pressure on the dollar. Geopolitical tensions, including ongoing trade disputes, are creating an unstable economic environment, which is amplifying their negative impact on the U.S. currency.

It was also notable to me that Mexico and Canada experienced delays in implementing U.S. tariffs, which could suggest that some countries are adopting policies aimed at easing economic pressures at this time. These developments could lead to a temporary calm in markets, but in the long term, pressures may resurface if trade tensions continue to escalate. These tensions will continue to affect the strength of the U.S. dollar, as the likelihood grows that the Fed will take steps to ease monetary policy if these economic challenges persist.

Regarding U.S. Treasury yields, they have risen slightly to 4.555% for the 10-year bonds, reflecting market fluctuations at a time when expectations for more monetary easing from the Fed are increasing. This slight rise in yields may be a result of the dollar’s retreat, as investors seek safer havens with better returns amid economic uncertainty. However, this rise remains limited considering the ongoing negative pressures on the U.S. economy, which may lead to continued volatility in financial markets.

Therefore, it seems to me that the U.S. dollar is facing a tough period with the ongoing weakness in economic data, both in the labour market and the industrial sector, alongside continued geopolitical and trade tensions. We may witness further pressure on the U.S. currency if these trends continue to intensify. It will be important to monitor the statements from Fed officials in the coming weeks, as those statements may play a decisive role in shaping monetary policy direction and, consequently, the path of the U.S. dollar shortly