MUFG’s Lloyd Chan said the US nonfarm payrolls (NFP) report, along with the unemployment rate and wage growth, may lift the US Dollar. He said markets have kept net long USD positions into the release, though positioning is not seen as stretched.
He noted the US Dollar Index (DXY) has held near 98.00, while spot moves have looked softer than positioning suggests. He pointed to labour data that may support a stronger April NFP than the consensus forecast of +65k.
Labor Indicators Point To Upside
Initial jobless claims averaged about 203k in April, down from 209k in March. The ADP report showed faster private hiring, and the ISM services employment index rose to 48.0 from 45.2.
He said this pattern leaves NFP risks tilted to the upside, which could support the dollar. He added that a sharp hawkish shift in US rate expectations is still unlikely, which may cap any further USD gains after the data.
The recent April jobs report came in stronger than expected, showing a gain of 240,000 jobs against a consensus of 180,000. This has kept the US Dollar Index firm around the 105.50 level. However, we believe any further dollar strength from this data will likely be limited in the coming weeks.
While wage growth was also robust at 4.0% year-over-year, it is not enough to cause a major hawkish shift from the Federal Reserve. The market has already priced in a slower path for rate cuts this year. A sharp repricing of interest rate expectations based on this one report is therefore unlikely.
Range Trading Likely For The Dollar
We are looking at a different market compared to the summer of 2025, when a similar report caused a significant rally in the dollar. Back then, inflation fears were much more pronounced, leading to a more aggressive market reaction. Today, the market appears more comfortable with the Fed’s patient, data-dependent approach.
For derivative traders, this suggests that the dollar may trade within a range rather than break out higher. Selling out-of-the-money call options on dollar pairs could be a viable strategy to capitalize on capped upside and potentially decreasing volatility. This environment is less about direction and more about the boundaries of the current trading range.
Leading indicators from last month, such as initial jobless claims holding steady around 215,000, support this view. They point to a labor market that is solid but not accelerating at a pace that would force the Fed to consider hiking rates. This backdrop should help contain any major moves in the currency markets for now.
