Dollar Declines Amid Mixed U.S. Job Market Signals

The U.S. dollar fell to a one-month low against the yen and a one-week low against the euro. Mixed U.S. job market data raised caution ahead of a crucial payrolls report. Traders anticipate varying probabilities of Fed rate cuts, with job growth estimates ranging from a weak to a strong outcome.

The U.S. dollar slid to a one-month trough against the yen and a one-week low against the euro on Friday. Mixed U.S. job market data has raised caution ahead of a crucial monthly payrolls report. On Thursday, a report showed that new jobless claims declined, easing fears of rapid labor market deterioration, while data the previous day indicated private job growth had slowed to a 3-1/2-year low in August.

According to the CME Group's FedWatch Tool, traders currently see 41% odds of a 50-basis point Fed interest rate cut on Sept. 18, compared to a 59% probability of a quarter-point reduction. This mixed data leaves traders uncertain ahead of Friday's payrolls print, with economists surveyed by Reuters predicting an increase of 160,000 jobs in August, up from July's 114,000 rise.

Strategists like Shoki Omori from Mizuho Securities suggest a likely weaker payroll number, but they acknowledge that a strong overall print could significantly impact USD/JPY rates. Fed officials, including Governor Christopher Waller and New York Fed President John Williams, will provide insights post-release, just before the Fed's policy meeting blackout period.

Fed Chair Jerome Powell has indicated a shift in focus from controlling inflation to preventing labor market deterioration. Analysts, such as those from TD Securities, highlight that the August payroll report could be critical, with estimates suggesting 205,000 jobs added in August, sufficient for a quarter-point rate cut and potentially triggering a dollar rebound.

The dollar index dropped to a one-week low, pressured by declining U.S. Treasury yields and strong performances from traditional haven currencies and cryptocurrencies, including the yen, Swiss franc, and bitcoin.

(With inputs from agencies.)