USD weakens as traders price in 75bps Fed cuts by year-end

The US Dollar Index fell 0.4% to 101.85 as traders increased bets on Federal Reserve rate cuts following concerning labor market data. Weekly initial jobless claims jumped to their highest level since October 2021, reaching 258,000 versus expectations of 230,000, signaling accelerating job market weakness. While Wednesday's CPI data showed inflation cooling to 2.9% year-over-year, the employment figures took precedence in driving market sentiment. Fed funds futures now price in nearly three 25-basis-point rate cuts by December 2025, up from two cuts priced earlier this week. Major USD pairs reflected this weakness, with EUR/USD climbing to 1.0920 and GBP/USD advancing to 1.2780. Technical indicators suggest further dollar weakness possible, with the DXY approaching key support at 101.50. Traders should monitor upcoming NFP data and Fed communications for confirmation of this dovish repricing.