The U.S. dollar weakened on Friday against major currencies, trimming its weekly gains as bond markets stabilized and investors awaited the release of critical employment data that could strengthen expectations for a Federal Reserve interest rate cut.
Thursday’s report showing higher-than-forecast jobless claims in the U.S. set the stage for the upcoming nonfarm payrolls data. Long-term government bonds rallied across the U.S., Europe, and Japan after a surge in yields due to fiscal concerns, while the S&P 500 touched a 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 added that the early drop in the dollar during European trading could signal investors are selling dollars ahead of the U.S. jobs release later in the day.
The dollar index, tracking the greenback against a basket of major currencies, fell 0.2% to 98.018, trimming its weekly gain to just 0.2%. The dollar also lost 0.2% against the yen, to 148.14, while the euro rose 0.2% to $1.1682.
In the UK, July retail sales exceeded expectations but had little impact on sterling, which rose 0.2% to $1.34695, while falling 0.05% against the euro to 86.74 pence.
Investor caution remains elevated due to U.S. President Donald Trump’s intervention in Fed policy and unpredictable tariff measures, said 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.”
Fed officials have continued to emphasize that labor market concerns support potential rate cuts, reinforcing expectations for imminent easing. The Federal Reserve is scheduled to meet on September 16-17.
Economists surveyed by Reuters expect U.S. nonfarm payrolls to rise by 75,000 in August, slightly above July’s 73,000. Thursday’s data had already shown weaker-than-expected private payroll growth and higher jobless claims.
“The risk is still tilted to payrolls underperforming U.S. economists’ expectations that will weigh on the USD tonight,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.
CME FedWatch indicates traders now see nearly a 100% chance of a rate cut in September, up from 87% a week earlier.
Michael Brown, senior research strategist at Pepperstone, noted that the jobs report is unlikely to change the Fed’s planned move.
“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 said.
Meanwhile, Stephen Miran, Trump’s nominee for a Fed seat, assured lawmakers that he would “not at all” act as the president’s puppet in setting interest rates.
Trump signed an order to reduce tariffs on Japanese auto imports and other products, initially announced in July. Japan also confirmed an ongoing $7 billion annual purchase of U.S. energy products.
Elsewhere, the Australian dollar climbed 0.4% to $0.6544, the New Zealand dollar rose 0.6% to $0.58785, bitcoin gained 2.16% to $112,796.78, and ether added 2.1% to $4,398.61.
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