The U.S. dollar lingered near a one-week low on Friday as markets braced for a highly anticipated monthly payrolls report, which is expected to shape the Federal Reserve’s next move on interest rates. A combination of mixed job market indicators has left traders uncertain about the central bank’s policy direction.
As of early Friday trading, the dollar index, which tracks the greenback against a basket of six major currencies, held steady at 101.03 after slipping by 0.2% overnight, briefly dipping to 100.96—the lowest since August 29. Over the past week, the index has dropped nearly 0.7%, reflecting investor caution.
On Thursday, a report showed that the number of Americans filing for unemployment benefits fell, suggesting that layoffs remain low despite concerns about labor market softening. However, this came in contrast to Wednesday’s data, which showed private job growth hit a 3.5-year low in August. These mixed signals have fueled uncertainty, with traders anxiously awaiting the payroll data release, which economists predict will show 165,000 new jobs in August, up from July’s modest 114,000.
The payroll report is expected to be a pivotal moment for the Federal Reserve as it approaches its September 18 policy meeting. Two key Fed officials, Governor Christopher Waller and New York Fed President John Williams, are slated to speak before the Fed enters its blackout period, offering the final public insights into the central bank’s thinking.
Currently, market bets reflect a 40% chance of a significant 50-basis point rate cut, according to the CME Group’s FedWatch Tool, while the odds of a smaller 25-basis point cut stand at 60%. This comes after a shift in expectations earlier in the week when the probability of a larger cut stood at 44%, and just a week ago at 34%.
Federal Reserve Chair Jerome Powell signaled in August that the Fed’s focus has shifted from battling inflation to stabilizing the labor market. During his speech at Jackson Hole, Powell strongly supported the beginning of a monetary easing cycle, citing concerns over labor market deterioration.
Analysts at TD Securities, led by global strategy head Rich Kelly, expect that August’s payroll report could add as many as 205,000 jobs. They believe this will support a quarter-point cut at the upcoming Fed meeting and likely trigger a rebound for the dollar. “There is simply lots of bad news priced into the USD, increasing the risks that a string of good news will kick-start a sizeable correction,” TD analysts noted.
In currency markets, the dollar held steady against the yen at 143.25, after briefly dipping to 142.85 overnight, its lowest since early August. U.S. Treasury yields have also declined, with the 10-year note slipping to a one-month low of 3.721%, adding downward pressure on the dollar.
Meanwhile, the euro remained stable at $1.1112, just shy of its one-week high, and sterling hovered at $1.31755, near its recent peak of $1.31855—the highest since August 30. The Australian dollar, considered a risk-sensitive currency, edged slightly lower to $0.6739.
In the cryptocurrency space, bitcoin rose modestly by 0.2% to $56,167, attempting to recover from its recent dip to a nearly one-month low of $55,575.78 earlier in the week.
As markets await the outcome of the payrolls report, traders are poised for a possible shift in sentiment, which could either deepen the dollar’s decline or spark a rebound, depending on how the job numbers influence Fed policy.