The US dollar held steady on Thursday in a volatile week, as investors grappled with a fragile bond market and labor market data that reinforced expectations the Federal Reserve will cut interest rates this month.
With the Fed focused on employment indicators, Friday’s nonfarm payrolls report is set to be a key driver in shaping investor expectations for upcoming policy meetings.
Data released Wednesday showed job openings fell in July to their lowest level in 10 months, though layoff rates remained relatively subdued. Additional reports on private-sector hiring and monthly layoffs were due Thursday.
According to CME’s FedWatch tool, traders are now pricing in nearly a 100% probability of a rate cut this month, up from 89% a week earlier, and are expecting cumulative easing of 139 basis points by the end of next year.
The dollar traded slightly higher in relatively calm conditions, as investors refrained from making major moves ahead of Friday’s employment report.
The euro was steady at $1.1655, while sterling held at $1.3445, above Wednesday’s four-week low. The dollar index edged up to 98.23. Against the yen, the dollar gained 0.2% to ¥148.33.
Several Fed officials reiterated that labor market concerns continue to underpin their view that further rate cuts lie ahead, reinforcing market expectations of imminent action from the central bank. James Knightley, chief international economist at ING, said the Fed is “very likely to cut rates significantly in the coming months, with limited inflationary pressures coming from the labor market.” He added that ING expects 25 basis point cuts at the September, October, and December FOMC meetings.
The Fed will next meet on September 16–17.
Bond Market Concerns
This week, attention remained centered on the global bond market, where long-term yields climbed amid concerns over fiscal positions in major economies including Japan, the UK, and the US.
Lee Hardman, currency strategist at MUFG, noted: “Global bonds recovered some losses yesterday, providing temporary relief and helping to stabilize the FX market.”
A successful auction of 30-year Japanese government bonds on Thursday eased investor concerns, while dovish-leaning Fed remarks supported a modest rally in US Treasuries, pushing yields lower. The US 30-year Treasury yield slipped one basis point on the day to 4.888%, after touching 5% on Wednesday, its highest in about six weeks.
Uday Patnaik, head of Asian fixed income and emerging market debt at L&G Investment Management, said higher yields reflect weak fiscal dynamics across major advanced economies, where debt-to-GDP ratios exceed 100%. “The issue is that none of these countries are running primary surpluses, meaning revenues don’t cover even non-interest spending. Fixing this will require major spending cuts or revenue increases at a time when social and political pressures are rising,” he warned.
Other Currencies
The Australian dollar fell 0.28% to $0.6525, while the New Zealand dollar slipped 0.23% to $0.5865.
