U.S. Dollar Edges Higher as Soft Labor Data Clouds Fed Rate-Cut Timing

The U.S. dollar edged modestly higher on Wednesday, moving away from its lowest level since early October, as investors weighed signs of a softening labor market against lingering uncertainty over when the Federal Reserve may deliver its next interest rate cut.

The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.18% to 98.394. Despite the uptick, the index remains close to the October 3 low touched in the previous session and is down around 9.5% so far this year, putting it on course for its steepest annual decline since 2017.

Data showed the U.S. economy added 64,000 jobs in November, beating expectations from economists surveyed by Reuters. However, the unemployment rate rose to 4.6%, highlighting emerging weakness in the labor market. Analysts cautioned that the figures were distorted by the 43-day government shutdown, which disrupted data collection and complicated interpretation.

Market participants remain unconvinced that the latest jobs report materially alters the Federal Reserve’s policy outlook, with attention now shifting to the U.S. inflation report due on Thursday.

“The severe distortion in the jobs numbers makes them virtually unactionable for January,” said Kieran Williams, head of Asia FX at InTouch Capital Markets. “It would be extremely difficult for the Fed to calibrate policy on such a poor signal-to-noise ratio.”

Williams added that policymakers would likely rely on cleaner first-quarter data to assess whether the pace of economic deterioration warrants further easing, suggesting March or April as a more realistic baseline for any potential resumption of rate cuts.

The Federal Reserve cut interest rates as expected last week but signaled that further easing is unlikely in the near term, projecting just one additional rate cut in 2026. Markets, however, are pricing in two cuts next year, though a January move is widely seen as improbable.

Major Central Bank Decisions in Focus

Currency markets are also bracing for a packed week of central bank decisions. The euro slipped 0.14% to $1.173, hovering near a 12-week high ahead of Thursday’s European Central Bank meeting, where policymakers are widely expected to keep interest rates unchanged.

Sterling fell 0.25% to $1.3388, retreating from a two-month high after data showed the U.K. unemployment rate rose to its highest level since early 2021, while private-sector wage growth slowed to its weakest pace in nearly five years. The figures reinforced expectations that the Bank of England could deliver a rate cut in a closely divided vote on Thursday.

The Japanese yen weakened to 155.145 per dollar ahead of Friday’s Bank of Japan meeting, where the central bank is expected to raise interest rates to a three-decade high. Investors will be closely watching forward guidance for clues on the future path of policy.

“We think the BOJ will struggle to give the kind of explicit guidance about the terminal rate that the market wants,” Bank of America strategists said, noting that a sharp weakening in the yen after the meeting could prompt policymakers to accelerate the pace of tightening and potentially bring forward the next rate hike to April 2026.

Elsewhere, the Australian dollar slipped 0.23% to $0.6619, while the New Zealand dollar traded at $0.57755. Despite the latest pullback, the kiwi is on track for a gain of more than 3% this year, snapping a four-year losing streak, while the Aussie is set to post a nearly 7% annual rise—its strongest performance since 2020.