The U.S. Dollar (USD) softened slightly in early Friday trade, giving back gains after climbing on Thursday in response to an unexpected private sector employment signal. According to Scotiabank Chief FX Strategists Shaun Osborne and Eric Theoret, the greenback rose after a report from Revelio Labs indicated that September’s Nonfarm Payrolls (NFP) could show a stronger-than-expected increase of around 60,000 jobs—though the official data has been delayed due to the government shutdown.
Shutdown Stalls Momentum, USD Meanders
“That is, if the data were actually being released today,” the strategists noted wryly. In its absence, markets turned to alternate indicators. For example, the Chicago Fed’s labor market forecast, also released Thursday, suggested a high probability of the unemployment rate remaining at 4.3% in September. That would imply less urgency for the Federal Reserve to act aggressively—though market pricing already reflects a dovish bias.
Interest rate futures show markets are still anticipating a 25 basis point rate cut by the end of October and are close to fully pricing in a total of 50bps in cuts by year-end.
DXY Faces a Soft Close
The DXY (U.S. Dollar Index) is drifting lower and appears set for a technically weak weekly close, but Scotiabank questions whether this will lead to any real directional momentum. In the absence of key economic data, the USD is likely to remain range-bound, with the DXY expected to hold between 97.50 and 98.50 in the near term.
“FX markets have been repeatedly shaken by U.S. political uncertainty this year,” they said, adding that investors may stay cautious until there is more clarity on the duration and outcome of the federal government shutdown. There’s a growing sense the closure could stretch for weeks, perhaps even rivaling the 35-day shutdown during the Trump administration.
Overnight Markets: Light News Flow, Muted FX Moves
Overnight, market activity was subdued, with no major currency moves to report. Global equities continued to climb modestly, while bond markets were mixed. Among currencies, high-beta FX like the NZD and ZAR showed marginal gains, while the JPY lagged slightly, though it still appears undervalued relative to the narrowing in U.S.-Japan yield differentials, Scotiabank noted.
Upcoming Data and Fed Speak
While the NFP report is unlikely to be released, markets will still receive some U.S. economic data today, including:
- Final PMI readings
- ISM Manufacturing
- Remarks from Fed officials: Miran (voter), Logan (non-voter), and Jefferson (voter)