The U.S. dollar edged down on Friday as markets remained subdued amid the U.S. government shutdown and ongoing speculation over potential Federal Reserve rate cuts.
By 04:30 ET (08:30 GMT), the Dollar Index, which tracks the greenback against six major currencies, dipped 0.1% to 97.475, slipping after posting gains in the prior session.
Shutdown dampens volatility
The ongoing U.S. government shutdown has delayed key data releases, including the highly anticipated nonfarm payrolls report originally scheduled for Friday. Investors are now relying on alternative labor market indicators to gauge economic trends and potential Fed policy moves.
The Chicago Fed’s report, combining private and publicly available data, estimated the September unemployment rate at 4.3%, unchanged from August. However, the ADP National Employment report released Wednesday showed a decline of 32,000 private-sector jobs in September, reinforcing expectations that the Federal Reserve may implement two additional rate cuts this year.
“Traded volatility is falling across financial markets,” noted ING analysts in a briefing. “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 strengthens on upbeat eurozone services data
EUR/USD gained 0.2% to 1.1735 after the HCOB Eurozone Services PMI showed activity expanding at the fastest pace in eight months. The index rose to 51.3 in September from 50.5 in August, marking a fourth consecutive month of growth above the 50 threshold.
“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 edged up 0.1% to 1.3460, with sterling benefiting from a softer dollar.
Yen weakens as BOJ signals caution
USD/JPY rose 0.1% to 147.43 following comments from Bank of Japan Governor Kazuo Ueda, who emphasized caution on trade tariffs and economic growth, signaling that the central bank would not immediately raise interest rates.
Although Ueda confirmed that rate hikes could resume if supported by economic data, his cautious remarks pressured the yen. Over the week, USD/JPY was on track for a nearly 1.4% drop, reflecting demand for the yen as a safe-haven amid global uncertainty.
Elsewhere, USD/CNY held steady at 7.1196 while Chinese markets remained closed for Golden Week, and AUD/USD climbed 0.2% to 0.6608 after the Reserve Bank of Australia left rates unchanged this week.
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