Dollar Index Targets 99.58 as Jobs Week Tests Hawkish Fed

The dollar's post-Jackson Hole rally faces its first real test this week as JOLTS, ADP and nonfarm payrolls determine whether the Fed's hawkish repricing has legs.

The dollar index targets 99.58 as markets price a 66 percent probability of a September Fed rate hike, with JOLTS, ADP and nonfarm payrolls this week testing the hawkish repricing.

"Underlying inflation trends have not meaningfully improved," Fed Chair Kevin Warsh said in his keynote address at the Jackson Hole symposium, asserting that the central bank's focus should be on delivering price stability. He also dismissed forward guidance as having "outlived its usefulness," advocating for a "quieter Fed" that lets market signals function directly.

The repricing has been swift. The CME FedWatch tool showed the probability of a quarter-point hike in September rising from 41 percent on Aug. 24 to 57 percent on Aug. 28, then to 66 percent by Monday. The Dollar Index closed at 99.70 on Aug. 28, up 0.91 percent for the week, after touching a two-week high of 99.73. July PCE inflation held steady at 3.7 percent annually with core at 3.3 percent, reinforcing the stickiness Warsh flagged. Gold fell 3.24 percent on the week to $4,454.28 an ounce.

The stakes are binary. If Friday's nonfarm payrolls report shows the labor market holding up — consensus expects 58,000 new jobs with unemployment steady at 4.1 percent — the September hike case hardens and DXY could break decisively above 99.58. If the data disappoints, following July's unexpected decline of 23,000 jobs, the urgency of a September move will be reassessed. The FOMC meets Sept. 16.

EUR/USD and GBP/USD Test Key Support

EUR/USD fell 0.80 percent last week to 1.1585, weighed down by the dollar's resurgence and by ECB minutes showing all policymakers unanimously supported a pause in July. The pair traded between 1.1688 and 1.1578, with the lower end now serving as a critical technical level. A break below 1.1578 could accelerate losses toward the 1.15 handle.

GBP/USD dropped nearly 1 percent to 1.3535, with the pair ranging between 1.3660 and 1.3526. Sterling's vulnerability is compounded by the Bank of England's own rate-hike trajectory, with Governor Andrew Bailey scheduled to speak Friday. The 1.3526 level is the immediate support to watch.

The Data Calendar

Tuesday brings the ISM manufacturing PMI (consensus 55.8) and the eurozone CPI flash estimate, expected to show headline inflation rising to 3.0 percent. Wednesday delivers JOLTS job openings and ADP private payrolls, followed by the Fed's Beige Book early Thursday. Friday's nonfarm payrolls report is the marquee event, with markets also watching Fed Governor Christopher Waller's interview Thursday evening and Cleveland Fed President Beth Hammack's remarks Friday.

The RBNZ is expected to hike 25 basis points to 2.75 percent Wednesday, while the Bank of Canada is seen holding at 2.25 percent. Both decisions will test whether the Fed's hawkish turn is contagious across developed-market central banks.

The dollar's trajectory this week will set the tone for the September FOMC meeting. A strong jobs report would cement the case for a hike and potentially push DXY toward the 100 handle, while a weak reading could trigger a sharp unwind of the hawkish positioning built over the past two weeks. For EUR/USD and GBP/USD, the technical levels at 1.1578 and 1.3526 respectively are the line in the sand — a break in either direction could trigger outsized moves as positioning adjusts.

This article is for informational purposes only and does not constitute investment advice.