The dollar slid against major currencies on Friday, trimming its weekly gains as bond markets steadied and traders prepared for the release of U.S. employment data that could reinforce expectations of a Federal Reserve rate cut.
Thursday’s data showing higher-than-anticipated U.S. jobless claims served as a prelude to the upcoming nonfarm payrolls report. Government bonds rallied across the U.S., Europe, and Japan after long-term yields had surged amid fiscal concerns, while the S&P 500 reached a new record high.
“It seems to me that the reaction to the ADP yesterday was a bit too muted,” said Francesco Pesole, FX strategist at ING. “All in all, it is pointing to a probably weak payroll figure today. I was a little surprised to see the dollar holding up yesterday.”
Pesole noted that early weakness in the dollar during European trading could reflect investors offloading greenbacks ahead of the U.S. employment release later in the session.
The dollar index, which tracks the greenback against a basket of major currencies, fell 0.2% to 98.018 on Friday, cutting its weekly gain to 0.2%. The dollar dropped 0.2% versus the yen to 148.14, while the euro rose 0.2% to $1.1682.
In the UK, July retail sales came in stronger than expected but had little effect on sterling, which gained 0.2% to $1.34695, while falling 0.05% versus the euro to 86.74 pence.
Investor caution has been heightened by U.S. President Donald Trump’s interference with Fed policy and unpredictable tariff moves, according to Bart Wakabayashi, Tokyo Branch Manager at State Street.
“The dollar remains very, very underweight,” Wakabayashi said. “I do think there is room for the dollar buying to come back at some point. Maybe investors are just waiting for the rate cut to happen and then pile back in.”
Several Fed officials have indicated that concerns about the labor market continue to support calls for rate cuts, strengthening expectations of an imminent easing. The Fed is scheduled to meet on September 16-17.
Economists surveyed by Reuters expect the Labor Department’s Bureau of Labor Statistics to report 75,000 new jobs in August, up slightly from July’s 73,000. Thursday’s figures had already signaled weaker-than-expected private payroll gains and higher jobless claims at month-end.
“The risk is still tilted to payrolls underperforming U.S. economists’ expectations that will weigh on the USD tonight,” wrote Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.
CME FedWatch shows traders are now pricing in nearly a 100% chance of a Fed rate cut this month, up from 87% a week ago.
Michael Brown, senior research strategist at Pepperstone, said Friday’s report will not significantly alter the Fed’s course.
“The Fed will be delivering a 25-bp cut at the September meeting. A hot report shan’t dissuade them from doing so, given the broader trend of softening jobs data. A cool report shan’t convince them to plump for a larger rate reduction, given lingering upside inflation risks,” he noted.
Meanwhile, Stephen Miran, Trump’s nominee for a Fed seat, assured lawmakers on Thursday that he would “not at all” act as the president’s puppet in making interest-rate decisions.
Trump signed an order on Thursday to implement reduced tariffs on Japanese automobile imports and other products, initially announced in July. Japan confirmed it will continue purchasing $7 billion in U.S. energy products annually, according to a joint statement.
Elsewhere, the Australian dollar climbed 0.4% to $0.6544, and the New Zealand dollar rose 0.6% to $0.58785. Bitcoin advanced 2.16% to $112,796.78, while ether increased 2.1% to $4,398.61.
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