USD Weakens as Labor Market Cools: Major Currency Pairs Under Pressure

2025-12-24 22:04:58

Market Overview: Dollar Losing Steam

The US Dollar took a significant hit on Tuesday as softer-than-expected employment figures sparked a broad sell-off. The Dollar Index (DXY) plunged below 98.00, marking its weakest position since mid-October. This move reflects growing market concerns about slowing US economic momentum, particularly in the labor sector.

Currency Performance Snapshot

Across major pairs, USD weakness was nearly universal. The greenback showed particular vulnerability against Sterling and the Euro, while maintaining relative strength only against the Australian Dollar. Here’s how the key currency cross-rates moved:

Major Currency Movements:

EUR/USD: Hovered around 1.1750 as the yield differential between the Fed and ECB compressed, despite Germany’s manufacturing contraction at 47.7
GBP/USD: Traded near 1.3430, with UK CPI data and the BoE’s policy decision on tap
USD/JPY: Slipped below 155.00 to trade near 154.65, as markets price in expectations for a potential BoJ rate hike to 0.75%
AUD/USD: Struggled around 0.6630, weighed down by weakness in Chinese economic data affecting its largest trading partner

For those tracking USD to AUD conversions, the 44 USD to AUD rate reflects the current softness in the dollar relative to the Australian dollar in the broader currency complex.

What’s Driving the Dollar Weakness?

The primary culprit remains US labor market deterioration. Delayed employment data revealed significantly softer job creation than anticipated, triggering concerns about economic resilience heading into year-end. This overshadowed weak data emanating from Europe, allowing dollar bears to gain control.

Economic Data in Focus

China’s economic releases added to the downside pressure on risk-sensitive currencies like the Australian dollar. Retail Sales contracted sharply to 1.3% from 2.9%, missing expectations substantially. Industrial Production also disappointed, falling to 4.8% annualized versus 5% forecast and 4.9% prior.

Upcoming catalysts include the UK Consumer Price Index (0% monthly, 3.5% annual expected) and the Bank of England’s policy announcement on Thursday, both of which could inject fresh volatility into sterling.

Safe-Haven Flows Support Gold

The combination of cooling US labor data and persistent inflation anxieties has reignited demand for safe-haven assets. Gold initially dipped to $4,270 in Asian hours but rebounded sharply as the “perfect storm” of dovish labor signals and inflation concerns materialized. The precious metal currently holds around $4,300, benefiting from the broader risk-off sentiment gripping markets.

Bottom Line

The softer US economic backdrop is clearly supporting the bid in non-dollar currencies and precious metals. Until labor markets show signs of stabilizing or the Fed signals a more hawkish stance, expect continued pressure on the dollar across the major pairs. Traders should monitor upcoming economic releases closely as they could either confirm or challenge this current trend.

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