The U.S. dollar was on track for a modest weekly gain as investors sought to balance the impact of the Federal Reserve’s hawkish tilt against lingering concerns over the U.S. economy. The dollar started a five-day winning streak last week after Federal Reserve Chair Jerome Powell acknowledged the risky nature of making further easing moves but dropped sharply on Thursday on soft labour data. U.S. Treasury yields also fell on concerns over economic uncertainty caused by the government shutdown in Washington and questions over the legality of President Donald Trump’s tariffs.
“With the December Fed meeting more or less a coin toss which crucially depends on labour market picture, market is overreacting to any hints about the labour market,” said Mohit Kumar, an economist at Jefferies, noting the lack of economic data as the government shutdown continues.
“Our view remains that Powell comments from the last FOMC meeting suggest that the bar for a December cut is high,” he added.
With the U.S. government shutdown postponing the release of the monthly non-farm payrolls report, traders have turned to private sector data showing the economy shed jobs in October in the government and retail sectors. Cost-cutting and the adoption of artificial intelligence also led to a surge in layoffs.
The dollar index, which measures the currency’s strength against a basket of six peers, appreciated 0.14 per cent to 99.81 and was on track for a 0.08 per cent weekly rise. It has recovered some strength but remained lodged within the same trading range it has sat in since August. A rush into safe-haven assets earlier this week supported the U.S. dollar, which has regained some of its safe-haven appeal, analysts said, even as the Japanese yen emerged as the market’s preferred defensive play.