Investing.com – The U.S. dollar fell slightly on Friday from a six-week high ahead of a key jobs report that could shape sentiment ahead of the Federal Reserve’s next meeting.
At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 101.667, just below the previous session’s six-week high .
The index is up almost 1.5% this week, its strongest performance since April.
Payrolls to guide dollar movements
The dollar was boosted this week by fairly healthy labor data – and weekly – and by demand for safe havens given rising tensions in the Middle East and the potential impact on the global economy.
Attention now turns to the release of the September report, which is likely to guide market expectations of further interest rate cuts by the Federal Reserve.
The US economy is believed to have maintained a moderate pace of job growth in the final month of the third quarter, with payroll costs rising by 147,000, while this level matches the August level of 4.2%.
ING is slightly more pessimistic than the consensus and expects 115,000 for the wage bill and 4.3% for the unemployment rate.
“That is unlikely to change the picture for the Federal Reserve, which should cut by another 25 bp in November and back to 50 bp for the time being,” ING analysts said in a note. “However, there has already been aggressive repricing of the USD OIS curve this week, and the dollar could correct lower on a somewhat weak jobs report.”
The euro is weakening now that the ECB is making further cuts
In Europe, inflation fell to 1.1027, with the euro down more than 1% this week as further signs of cooling inflation in the eurozone overshadowed strengthening activity data and French growth.
The European Central Bank has already started cutting interest rates, and usually hawkish policymaker Isabel Schnabel took a dovish stance earlier this week, raising expectations of another rate cut later this month.
“We maintain a moderate bearish bias on EUR/USD in the near term, even though our baseline expectation for a touch higher in US unemployment today should provide a reprieve,” ING added.
“Ultimately, less supportive interest rate differentials, instability in risk sentiment and a turbulent EU budget season mean the EUR/USD could remain under pressure. 1.1000 is major support, so a break lower could mean the correction extends relatively quickly to 1.09.”
rose 0.2% to 1.3154, recovering slightly after a 1% decline on Thursday, after Bank of England Governor Andrew Bailey said the central bank could aggressively cut rates if inflation pressures continue to ease.
Sterling has been on a bull run and is still up more than 3% this year, largely on expectations that the BoE will keep interest rates high for longer than the Federal Reserve as inflation remains stubborn.
Policy uncertainty hits the yen
fell 0.4% to 146.28, after rising to a six-week low of 147.25 a day earlier, reflecting uncertainty over the Bank of Japan’s future monetary policy.
Despite today’s gains, the yen is still on track to drop nearly 3% this week after comments from new Prime Minister Shigeru Ishiba raised expectations that rate hikes in Japan are even further away.
remained largely unchanged at 7.0185, while Chinese markets are now closed until Tuesday as the country celebrates Golden Week.
