Market snapshot: dollar retreats in NY FX trading as payroll data stirs rate-cut bets
In late trading, the U.S. dollar weakened against the yen and the euro in the New York foreign exchange market after softening U.S. jobs data reinforced bets that the Federal Reserve will deliver additional rate cuts this year. The dollar index slid about 0.2% to around 97.68, while the greenback touched intraday lows before closing lower on the session.
Against the yen, the dollar edged down to around 147.07 per yen, slipping 0.6% on the day after trading near the prior week’s trough. Earlier in the session, the currency had briefly traded at levels near the 17 September low, underscoring caution among traders about the path of U.S. policy and the impact of labor market developments on that path.
Drilling into the data: a softer payroll picture
The backbone of today’s market moves was a softer-than-expected September private payroll reading from ADP. The report showed a decline of 32,000 private payrolls for September, the largest drop since March 2023, erasing a previous month that had shown a gain. Compounding the signal, August’s figure was revised sharply lower—from a gain of 54,000 to a decrease of 3,000. Analysts saw the ADP data as adding to concerns about the U.S. labor market cooling, a key factor for the Fed’s rate decision trajectory.
“Each new data release seems to indicate a bit more labor-market softness, keeping the theme of a softer U.S. job market front and center,” said Eric Brager, risk-management director at Silver Gold Bull in Toronto. “That softening remains the dominant story for U.S. dollar direction.”
What the market expects: pricing in rate cuts
Following the data, market pricing shifted toward two modest rate cuts from the Fed this year. LSEG data indicated traders were increasingly pricing in a total 0.50 percentage point of cuts by year-end. The probability of a rate cut at the Federal Reserve’s October meeting was roughly 99%, underscoring widespread expectations that policy will ease further as inflation cools and growth slows.
As a result, the dollar index slipped from its highs and pulled back against major rivals. The euro rose modestly to around $1.1738, a one-week peak, while the dollar’s decline against the yen helped lift other risk-sensitive assets and supported a more balanced risk appetite in the currency market.
A broader backdrop: politics, data timing, and policy meetings
The market backdrop featured a partial government shutdown risk in the United States, a consequence of a partisan stalemate over funding. The impasse also meant the planned release of the September U.S. jobs report by the Labor Department could be delayed, increasing the weight of ADP’s figures as a timely proxy for the official payrolls data. Investors will be closely watching communications around the potential delay and any guidance from policymakers ahead of the Federal Reserve’s next policy meeting on October 28–29.
Juan Pérez, head of trading at Monex USA in Washington, warned that the shutdown environment is generally negative for the dollar, noting: “When government functioning is uncertain and official data are delayed, the dollar loses some of its usual certainties.” He added that the market would need to digest how much the shutdown might reflect broader economic weakness and what it implies for the Fed’s policy stance.
<h2 Looking ahead: key indicators and policy milestones
Beyond the ADP data, investors will be paying attention to the official jobs report and other forward-looking indicators to gauge the resilience of the labor market and the inflation outlook. The Fed’s October decision looms as a central reference point, with traders scaling back expectations of a more aggressive path and pivoting toward a cautious, data-driven approach to future rate moves. The USD/JPY pair’s retreat from multi-week highs and the EUR/USD’s incremental gains highlight a shift toward a more balanced risk currency regime as traders calibrate their positions for the autumn policy cycle.
In sum, the latest payroll data has reinforced expectations that the Fed could implement two more rate cuts by year-end, a view that has provided some relief to the dollar but also kept market participants attentive to shifts in data and fiscal dynamics that could alter the trajectory of U.S. monetary policy in coming weeks.
