USD Index drops 0.43% on mounting Fed rate cut expectations

The US Dollar Index extended its decline Monday, falling 0.43% as traders increased bets on Federal Reserve rate cuts following weak economic data. Friday's disappointing US payroll report and ISM manufacturing index, which contracted more than expected, fueled speculation that the Fed could begin easing monetary policy as soon as September. The softer employment figures particularly rattled dollar bulls, with non-farm payrolls missing estimates and wage growth moderating. This negative momentum carried into Monday's session, pushing EUR/USD above 1.0850 and lifting GBP/USD toward 1.2750. The two-year Treasury yield, which closely tracks Fed rate expectations, has already begun pricing in potential cuts, reflecting growing market conviction about policy easing. Technical indicators suggest further dollar weakness possible, with the DXY testing support at 103.50. A break below this level could accelerate losses toward 103.00, while any recovery faces resistance at 104.20.