Dollar Weakens Ahead of Key U.S. Payroll Data as Market Awaits Fed’s Next Move

The U.S. dollar hit a one-month low against the yen and a one-week low versus the euro on Friday, as traders exercised caution ahead of a key U.S. jobs report. Mixed signals from recent employment data have added uncertainty to the market, influencing expectations for the Federal Reserve’s next interest rate decision.

Thursday’s report showed that new jobless claims in the U.S. fell, easing concerns of a rapidly weakening labor market. This followed data earlier in the week showing that private sector job growth slowed to its lowest level in three and a half years in August.

Traders are now pricing in a 41% chance of a larger 50-basis point interest rate cut by the Fed at its upcoming meeting on September 18, according to the FedWatch Tool. However, the majority, at 59%, still expect a more modest quarter-point cut. A week ago, the odds of a 50-basis point cut were only 30%.

Economists surveyed by Reuters predict an addition of 165,000 jobs in August, compared to July’s increase of 114,000. However, TD Securities forecasts an even stronger figure of 205,000, which could lead the Fed to opt for a smaller quarter-point rate cut, possibly sparking a dollar recovery.

The dollar fell 0.7% to 187.63 yen by 05:40 GMT, its lowest since early August. Long-term U.S. Treasury yields also dropped to a one-month low of 3.708%, putting additional pressure on the dollar.

The euro remained steady at $1.11145, just below Thursday’s peak of $1.11195, which marked its highest level since late August. Meanwhile, sterling held at $1.3172, near its recent high of $1.31855.

The broader dollar index, which tracks the currency against major counterparts including the yen, euro, and sterling, dipped 0.1% to 100.94, a one-week low. Over the course of the week, the index has fallen by nearly 0.8%.

Safe-haven currencies, such as the Swiss franc, gained strength, rising 0.26% to 0.8422 per dollar. The risk-sensitive Australian dollar, meanwhile, declined 0.24% to $0.6725.

Bitcoin, the leading cryptocurrency, edged up 0.8% to $56,520, as it attempted to rebound from its recent dip to a nearly one-month low of $55,575.78.