Market Overview: Dollar Dips in NY FX Market
The dollar eased in late New York trading as softer U.S. employment signals intensified bets that the Federal Reserve will deliver additional rate cuts this year. The dollar index drifted lower, while major forex pairs retraced earlier gains and the dollar weakened against the yen and the euro. In the window’s close, the dollar/yen pair was about 0.6% lower near 147.07, after dipping to intraday lows not seen since mid-September.
Traders kept a close eye on the evolving U.S. data backdrop after a run of soft figures suggested the labor market might be cooling more than expected. The ADP Research Institute’s September report showed private payrolls retreating by 32,000, the largest drop since March 2023. August’s data also got a substantial downward revision, shifting from a gain of 54,000 to a slight decrease of 3,000. These revisions reinforced a narrative among market participants that the Fed could lean toward additional easing later this year.
Dollar vs Yen and Euro
Against the yen, the greenback weakened, with USD/JPY ending the session around 147.07, reflecting a broader risk-on tone as traders priced in policy accommodation. The euro advanced modestly, trading near a one-week high around EUR/USD 1.1738, supported by the softer dollar and improving risk sentiment in portions of the market.
In parallel, the dollar index (DXY) hovered around 97.7, slipping to a level just above a one-week low by session’s end. The moves underscored how a softer U.S. labor market could tilt cross-asset dynamics toward higher rates of rate cuts priced in by futures markets.
ADP Data and Fed Outlook
Markets treated the ADP data as reinforcing the case for a deteriorating labor market in the near term. The report, viewed as a proxy for the official Labor Department figures due to the ongoing government budget impasse, contributed to growing expectations that the Fed will cut at least 0.25% to 0.50% by year-end. LSEG data pointed to a high probability—near 99%—that the Fed will decide on further easing at the October meeting.
Traders price in a total of about 50 basis points of cuts over the remaining months of 2024, with the likelihood of an additional move contingent on incoming data. The prospect of further policy loosening helped keep the dollar under pressure against other major currencies, particularly the yen, where intervention or policy divergence could alter risk dynamics in the weeks ahead.
Policy Path and Market Risks
The ongoing government funding dispute in Washington adds a layer of uncertainty. A partial government shutdown has complicated the timing and release of some economic data, which could heighten sensitivity to incoming figures and policy expectations. The Labor Department’s September payrolls release, initially anticipated on a normal schedule, could be delayed if the shutdown persists, elevating the importance of the ADP print as a proxy for labor conditions.
What to Watch Next
Looking ahead, traders will be watching for fresh labor-market signals and broader inflation indicators to gauge the Fed’s policy trajectory. The Federal Reserve’s next policy meeting is slated for October 28-29, and the market’s pricing for a continued rate-cut trajectory will hinge on the evolving employment picture and inflation data. If the labor market remains soft, the case for further easing strengthens; if wage growth or activity holds, the Fed could temper expectations for additional cuts. For now, the dollar’s slide against the yen and modest gains against the euro reflect shifting expectations about the Fed’s rate path and the resilience of global markets in the face of domestic headwinds.
