US Dollar Price Forecast: Strong Jobs Revive Fed Hike Bets as ECB Decision Looms

• U.S. employers added the strongest payroll increase in five months with unemployment holding at 4.1%, pushing Fed rate hike probability to 57% for September
• ECB expected to raise rates by 25 basis points to 2.50% on Thursday as eurozone inflation accelerated to 3.3%, with some forecasts calling for another December hike
• Dollar Index technical outlook remains neutral-to-bearish below 99.47, with key support at 98.83 and resistance capping gains as energy-driven inflation pressures may force other central banks to tighten

Summary

Key Development:

Strong U.S. August payroll data has revived Federal Reserve rate hike expectations, with employers adding jobs at the strongest pace in five months. Unemployment held steady at 4.1%, while wage growth eased to 3.1% annually. Markets now price in a 57% probability of a September Fed rate increase, up from below 50% before the jobs report.

Central Bank Actions:

The European Central Bank (ECB) decision on Thursday is a major catalyst, with economists expecting a 25-basis-point hike to 2.50% after eurozone inflation accelerated to 3.3%. Deutsche Bank forecasts another increase in December due to sustained energy inflation driven by Iran-related shocks. The Bank of England faces similar inflation pressures, with officials arguing for preemptive tightening to prevent energy-driven inflation from becoming embedded.

Market Implications:

Despite stronger Fed hike expectations, the Dollar Index has received limited support as investors consider that energy-driven inflation may force other central banks to tighten as well, limiting the U.S. yield advantage. Upcoming U.S. PPI and CPI reports will be critical tests for the dollar's trajectory.

Technical Levels:

• Dollar Index (DXY): Trading at 99.07, with key support at 98.83 and resistance at 99.08-99.47
• GBP/USD: Currently at 1.3530, rebounding from 1.3477 support but capped by 1.3526-1.3565 resistance
• EUR/USD: At 1.1620, holding above 1.1599 support with resistance at 1.1625

Outlook: DXY neutral-to-bullish, EUR moderately bullish, GBP neutral-to-bullish, pending inflation data and ECB decision.