Dollar Dips as Mixed U.S. Job Data Stir Investor Caution

The dollar weakened against the yen and euro following mixed U.S. job market data, ahead of a critical payroll report. While jobless claims dropped, private job growth hit a 3-1/2-year low. Traders speculate on Federal Reserve interest rate cuts based on the upcoming payroll numbers, which could impact currency values.

The dollar weakened to a one-month low against the yen and a one-week low against the euro on Friday, driven by mixed signals from the U.S. job market ahead of a crucial payroll report. Jobless claims fell last week, easing fears of rapid labor market deterioration, despite private job growth hitting its lowest in 3-1/2 years in August.

Traders are currently split on the likelihood of a larger-than-expected Federal Reserve interest rate cut on Sept. 18, with CME Group's FedWatch Tool showing a 41% chance of a 50-basis point cut. A day earlier, the odds for this were at 44%, having risen from 30% just a week ago. Economists anticipate a rise of 165,000 jobs in August, up from 114,000 in July.

Strategists like Shoki Omori of Mizuho Securities predict a weaker payroll report outcome, citing early forecasts that did not account for recent indicators. With Federal Reserve officials like Governor Christopher Waller and New York Fed President John Williams set to speak, the central bank's response will become clear soon. Analyst reports, such as one from TD Securities, suggest that while recent labor data has been troubling, August could see 205,000 new jobs, prompting a smaller rate cut and a potential dollar rebound.

(With inputs from agencies.)