Dollar Weakens Ahead of US Payrolls Test, Reports Reuters

By Laura Matthews and Saqib Iqbal Ahmed

NEW YORK (Reuters) – The U.S. dollar saw a slight decline against most major currencies on Thursday amid volatile trading as investors prepared for the upcoming U.S. payrolls report, which could influence future interest rate cuts by the Federal Reserve.

Recent sessions have pressured the dollar as indications of slowing growth in the U.S. economy heightened the likelihood of the Fed acting more decisively on interest rate reductions. Federal Reserve Chair Jerome Powell recently indicated support for starting cuts soon, reflecting concerns about a softening labor market.

On Thursday, data revealed a decrease in new jobless claims, suggesting that layoffs remained low and easing concerns over a worsening labor market. This came after previous reports highlighted a significant drop in U.S. private job growth to a 3-1/2-year low in August.

Economists anticipate an addition of 165,000 jobs in August, an improvement from the 114,000 jobs added in July. Adam Button, chief currency analyst at Forexlive in Toronto, remarked, “There’s a looming sense that a downturn in the economy is coming, but these latest numbers don’t indicate that.”

Market sentiment is fluctuating between predicting a 25 or 50 basis points cut with each piece of new data. Current pricing suggests a 59% likelihood of a 25 basis point cut during the Fed’s upcoming meeting on September 17 and 18, with a 41% chance of a 50 basis point cut, totaling approximately 100 basis points of cuts expected for the year.

The euro increased by 0.2% against the dollar to reach $1.1106, marking a one-week high. The Dollar Index, assessing the dollar’s strength against six major currencies, fell by 0.2% to 101.08.

The dollar weakened against the Japanese yen by 0.3%, settling at 143.35 yen, the lowest in a month. Safe-haven buying and expectations for imminent rate hikes by the Bank of Japan have bolstered the yen in recent sessions.

Traders in the options market are bracing for significant currency fluctuations on Friday, with overnight implied options volatility for the euro at its highest level since the March 2023 banking turmoil and a year high for the yen.

The British pound advanced by 0.2% to $1.31715, with the Bank of England set to meet in two weeks to determine its monetary policy. Current market predictions show minimal expectations for a rate cut this month, while a quarter-point cut is fully anticipated for November.

The Australian dollar recovered from earlier losses, rising 0.1% on the day, buoyed by a hawkish stance from the Reserve Bank of Australia.

As investors shunned riskier assets, cryptocurrencies faced declines, with Bitcoin dropping 2.6% to $56,510, and Ethereum falling about 2.8% to $2,387.