U.S. Dollar Dips Amid Mixed Economic Signals, But Stays on Track for Weekly Gains

The U.S. dollar retreated from its recent two-month highs against major currencies on Friday, as signs of weakness in the labor market increased the likelihood of quicker Federal Reserve rate cuts. Despite this dip, the dollar is set to post its second consecutive weekly gain, bolstered by strong payroll figures released earlier in the month.

Initial jobless claims surged on Thursday, strengthening the case for rate cuts. However, this was offset by an unexpected uptick in the Consumer Price Index (CPI), suggesting that restrictive monetary policy may still be necessary to control inflation. This mixed data led to a complex market interpretation of the Fed’s next moves.

Bets for a quarter-point rate cut by the Fed in November climbed to 83.3% from 80.3% a day earlier, according to the CME Group’s FedWatch Tool. This contrasts with last week, when there was a 32.1% chance of a half-point cut.

The dollar index, which measures the greenback against six peers, was flat at 102.89 as of 05:43 GMT, down from Thursday’s high of 103.17. For the week, the index is still set to rise by 0.41%, following last week’s significant 2.06% surge.

Despite this, Fed officials remain divided. Chicago Fed President Austan Goolsbee hinted that rates could “gradually come down,” while Atlanta Fed President Raphael Bostic expressed openness to skipping a rate cut in November.

Meanwhile, the dollar inched up by 0.04% against the yen, reaching 148.64 yen, moving closer to Thursday’s high of 149.58 yen. However, a move above 150 yen seems unlikely for now, as concerns grow that surpassing this level could prompt a resurgence of carry trades.