The U.S. dollar edged slightly lower on Friday in a session marked by low volatility, as investors weighed the impact of the ongoing U.S. government shutdown and the possibility of additional Federal Reserve rate cuts.
At 04:30 ET (08:30 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, was down 0.1% at 97.475, retreating after gains seen in the previous session.
Government shutdown suppresses market movement
The shutdown has effectively stalled hopes for the timely release of the key nonfarm payrolls report, originally scheduled for Friday. The Federal Reserve has closely monitored labor market data, considering a potential series of rate cuts to support hiring and investment.
A report from the Chicago Fed, blending private and public data, estimated the September unemployment rate at 4.3%, unchanged from August. However, other readings indicate further labor market weakening; the ADP National Employment report on Wednesday showed private payrolls fell by 32,000 in September, reinforcing expectations of two additional Fed rate cuts this year.
The lack of fresh official data has kept trading ranges narrow. “Traded volatility is falling across financial markets,” said analysts at ING, in a note. “Investors have settled into the view that the Fed will likely cut rates twice more this year and probably another 50bp in 2026. The U.S. interest rate volatility – so often the driver of volatility in other asset classes – is just not here at the moment.”
Euro climbs on strong eurozone services data
EUR/USD rose 0.2% to 1.1735 after HCOB and S&P Global reported that growth in the eurozone services sector accelerated slightly in September, reaching an eight-month high. The Eurozone Services PMI Business Activity Index climbed to 51.3 in September from 50.5 in August, signaling the fourth straight month of expansion.
“The ECB script at the moment remains one of the 2.00% deposit rate being at a good place, but that the central bank would not hesitate to act if needed,” said ING. “That threat to act probably means one further rate cut should inflation undershoot at a time of weak activity. However, the market struggles to price another 25bp cut in this cycle.”
GBP/USD moved up 0.1% to 1.3460, benefiting from dollar softness.
Yen softens as BOJ Governor signals caution
USD/JPY traded 0.1% higher to 147.43 following comments from Bank of Japan Governor Kazuo Ueda, who emphasized caution over economic trends and trade tariffs, suggesting the central bank would not raise rates immediately.
While Ueda confirmed the BOJ would hike rates if supported by economic data, his measured statements pressured the yen. Still, USD/JPY was set for an almost 1.4% weekly decline, reflecting demand for the yen as a safe-haven amid global uncertainties.
Elsewhere, USD/CNY remained steady at 7.1196 with Chinese markets closed for Golden Week, while AUD/USD gained 0.2% to 0.6608 after the Reserve Bank of Australia left rates unchanged this week.
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