U.S. Dollar Falls Despite Strong NFP – Services PMI and Trade Tensions Dominate

Overview:

The U.S. dollar faced notable pressure last week despite strong employment data, as concerns over new tariffs and a slowdown in the services sector weighed on investor sentiment.

• Strong NFP beat (228K jobs) – Solid job growth was offset by a rise in unemployment to 4.2%, muting dollar gains.
• ISM Services PMI at 50.8 – A sharp slowdown in services activity signals early signs of demand fatigue.
• U.S. tariffs escalate trade tension – Markets remain cautious as new import levies raise inflation and growth concerns.
• Stagflation risk re-emerges – Diverging inflation and growth data fuel fears of a stagflationary environment.
• VIX hits highest level since 2020 – Volatility surges as investors rotate out of risk assets into safe havens.
• DXY holds at 102.77–103.01 – The dollar consolidates near fair value, awaiting a breakout or further pullback.
• CPI and FOMC minutes ahead – This week’s data will guide expectations on the Fed’s next policy move.

Nonfarm Payrolls: Strong Hiring Meets Soft Unemployment

In March 2025, the U.S. economy added 228,000 jobs, surpassing the forecasted 137,000 and marking an increase from February's 117,000.

However, the unemployment rate edged up to 4.2% from 4.1%, indicating that more individuals are actively seeking employment. Despite the rise in employment, the overall unemployment rate is still higher vs the employment numbers.

ISM Services PMI Miss Sparks Growth Concerns

Services PMI: 50.8 vs. 53.0 forecast

The ISM Services report posted a notable miss, falling from 53.0 to 50.8 in March—its lowest level in nearly a year. The slowdown in new orders and business activity points to waning momentum in the service-led economy.

• Slower growth in key consumer-facing industries
• Potential early signal of demand-side fatigue
• Reignites discussion of a cooling cycle beneath headline jobs strength

Policy Overhang: Trade Tensions Remain a Persistent Undercurrent

While the market has mostly digested the “Liberation Day” tariff announcement made earlier this month, its economic implications are far from over. The new import taxes, check this for a list of fresh levies: 

ACY SecuritiesGlobal Trade Tensions Escalate: How U.S. Tariffs Are Impacti…, along with elevated country-specific duties rolling out through April, continues to cast a long shadow over investor sentiment.

• Traders remain cautious, pricing in ripple effects across supply chains and inflation expectations
• Tariff-related uncertainty is now less about the headlines and more about the structural drag on future growth
• Reactions from major trading partners like China and the EU are still unfolding, keeping risk sentiment fragile

Rather than serving as a one-time shock, the policy has evolved into a macro backdrop issue—contributing to defensive positioning in the dollar despite otherwise supportive data.

Stagflation Risk – Still Premature, but the Signs Are There

What is stagflation?

Stagflation is an economic condition defined by slowing growth, persistent inflation, and elevated unemployment—a rare but dangerous mix for policymakers and markets.

Key signs developing:

• Strong labor numbers masking a slowdown in services and domestic demand
• Potential inflation rebound due to rising input costs from new trade policies
• Fed in a holding pattern, neither easing nor tightening aggressively

While the U.S. isn't there yet, the conversation is heating up—especially as growth and inflation indicators begin to pull in opposite directions.

Volatility Index: At New Highs since 2020

With the VIX reaching its highest levels since 2020, risk-off sentiment continues to dominate as investors retreat from equities and other high-risk assets amid renewed tariff concerns.

US Dollar: Rebounding at Breakpoint Level

4-Hour

After a continuous drop on Dollar weighed down by a disappointing numbers from the ISM PMI, tariff threats, and rise in unemployment rate, the greenback is currently trading at 102.773 - 103.013 Fair Value Gap level.

The previous 102.054 - 102.404 has been invalidated as price traded through it. This also has been outlined in our latest video: https://www.youtube.com/watch?v=sD-Xc01d6rE

Daily

As the rebound continues, we might see Dollar reaching the breakpoint level at 103.373 and observe for a reaction.

Key Market Drivers This Week

Main catalyst that we are going to observe this week is the inflation rate print with forecast of a lower number vs the previous on a YoY basis.

FOMC minutes will also give us hints of what the FED’s approach will be regarding the on-going tariffs and its impact on inflation.

Key Take-Away

The dollar’s decline last week wasn't about data disappointment—it was about what the data didn’t resolve. The market sees strong jobs, but also sees growing cracks in consumer-facing sectors, increased policy unpredictability, and inflation risks that could tie the Fed’s hands. The result: a hesitant dollar in the face of mounting complexity.

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