Dollar Weakens as Traders Brace for Key U.S. Jobs Data

The U.S. dollar slipped on Friday, retreating against major peers as global bond markets stabilized and investors awaited the closely watched U.S. nonfarm payrolls report, a key test for the Federal Reserve’s policy path.

The dollar index, which tracks the greenback against six major currencies, dipped 0.2% to 98.018 in early European trade, erasing part of its weekly gains. Futures tracking the index also declined 0.3%, pushing it below the 98.00 threshold after being rejected at 98.45 on Thursday. For the week, the index was still up around 0.2%.

The euro strengthened 0.2% to $1.17, while sterling gained 0.3% to $1.35. Against the yen, the dollar fell 0.2% to 148.22.

The latest move reflects heightened caution ahead of the August U.S. employment data, due later on Friday. Economists surveyed expect payrolls to increase by 75,000, a modest improvement from July’s 73,000, but still indicative of a cooling labor market. Thursday’s reports of weaker-than-expected ADP private payrolls and higher jobless claims reinforced expectations of softness.

Several analysts argue that another disappointing jobs reading would all but cement the case for a Federal Reserve rate cut at its upcoming September 16-17 meeting. According to CME’s FedWatch tool, traders are now pricing in a near 100% chance of a 25-basis-point reduction, up from 87% a week ago. Futures markets are assigning a 99.4% probability to easing, underscoring the conviction that the Fed will act.

Fed policymakers, including New York Fed President John Williams and Chicago Fed President Austan Goolsbee, have recently warned about rising downside risks to employment, signaling openness to further support growth. While the central bank’s dual mandate focuses on both price stability and maximum employment, the latest comments suggest that safeguarding the labor market has become the priority, even as inflation risks linger.

Investor sentiment toward the dollar has also been dampened by concerns over U.S. President Donald Trump’s unpredictable trade policies and frequent criticism of the Fed.

Equity markets, meanwhile, remain buoyant, with the S&P 500 hitting fresh record highs this week as bond yields steadied after a recent surge. However, in currency markets, traders are hesitant to take large positions before the payroll releases.

For now, markets are in wait-and-see mode, with the outcome of Friday’s jobs report likely to set the tone for both the dollar and the Fed’s policy trajectory in the weeks ahead.