Dollar Hovers Near Eight-Week Lows Ahead of Crucial U.S. Jobs Report

The dollar lingered around its lowest levels in eight weeks on Friday, as investors awaited a key U.S. jobs report that could provide clearer insights into when the Federal Reserve might begin cutting interest rates.

Euro Maintains Gains Post-ECB Rate Cut

The euro held onto its gains from the previous night after the European Central Bank (ECB) reduced rates in a widely anticipated move. However, the ECB offered few clues about future monetary policy amid ongoing inflation concerns.

The U.S. dollar index, which measures the greenback against the euro and five other major currencies, was down 0.1% at 104.05 as of 1135 GMT, hovering near this week’s low of 103.99—the first dip below 104 since April 9.

For the week, the index was set for a 0.54% decline following a series of weak macroeconomic data that led investors to expect two quarter-point rate cuts by the Fed this year.

Traders are bracing for a potentially soft non-farm payrolls report later today, with job growth possibly falling short of the 185,000 median forecast by economists.

The Federal Open Market Committee (FOMC) is not expected to change its policy at next week’s meeting, but markets are currently pricing in 50 basis points of cuts by year-end, with the first cut likely in September.

“It’s anyone’s guess, but I think if we get a weak number, we’re going to see further declines in bond yields—that will be good news for stocks,” said Kathleen Brooks, research director at trading platform XTB. “But if we get something in the 180, 190, 200 (thousand) level, indicating expansion in the labor market, then we could see a turnaround and the dollar gaining strength.”

Easing Cycle Begins

The euro rose 0.1% to $1.0896 after gaining about 0.2% the previous session when the ECB initiated its easing cycle with a quarter-point rate cut. However, the ECB also raised its inflation forecasts, now expecting inflation to remain above the 2% target until late next year.

“On the day, the fact is the ECB came out to be more hawkish than the pervasive narrative,” said Gavin Friend, senior markets strategist at National Australia Bank. ECB President Christine Lagarde “was very reticent in giving any guidance on further easing,” Friend added.

Sterling and Yen Movements

Sterling edged up 0.1% to $1.2803, close to the week’s high of $1.2828, its strongest level since mid-March.

The yen also strengthened modestly, with the dollar down 0.1% to 155.51 yen, on track for a 1.2% weekly loss—its largest since late April, when Japanese monetary authorities intervened to support the yen.

Similar to the Fed, the Bank of Japan (BOJ) will decide policy next week. Market consensus is building for an imminent reduction in the BOJ’s monthly bond purchases to tighten credit conditions.

Despite recent gains, the yen remains close to the 34-year low of over 160 per dollar reached at the end of April, prompting Japanese officials to spend approximately 9.8 trillion yen ($62.9 billion) intervening in the currency market.

Both the Japanese government and the BOJ are concerned that rising import costs could undermine the anticipated cycle of moderate inflation and steady wage increases.

Japanese Finance Minister Shunichi Suzuki reiterated readiness to act against excessive currency fluctuations but emphasized the need for restraint. “Foreign exchange intervention should be done with its necessity and effectiveness taken into account,” he said, “and should be conducted in a restrained manner.”

($1 = 155.7200 yen)