The US Dollar (USD) experienced a slight pullback on Friday after reaching a fresh yearly high, as traders across global currency markets shifted focus to the upcoming US Nonfarm Payrolls (NFP) report for September, scheduled for release at 12:30 GMT [1][4]. The NFP is widely anticipated to show a slowdown in job creation, with consensus forecasts pointing to an increase of 90,000 jobs, down from 162,000 in August, while the unemployment rate is expected to remain steady at 4.1% [1][2][3][4]. This data is seen as pivotal for shaping expectations around future Federal Reserve (Fed) interest rate moves, with recent commentary from Fed officials, including Dallas Fed President Lorie Logan, indicating support for at least two more quarter-point hikes to bring inflation back to target [1].
The Euro (EUR) found temporary support against the USD after a four-day losing streak, trading up 0.1% to near 1.1253 in Asian hours, having hit a fresh yearly low at 1.1215 earlier in the week [1]. The Euro was the weakest major currency against the USD this week, declining by 1.11% [1]. Investors are also awaiting the preliminary Harmonized Index of Consumer Prices (HICP) for September, expected to accelerate to 3.6% year-on-year from 3.2% in August, which could reinforce expectations of further European Central Bank (ECB) rate hikes [1].
The Swiss Franc (CHF) gained ground as USD/CHF extended losses for a second day, trading around 0.8290, amid easing Fed rate hike bets and a 28% market-implied probability of an October hike, according to the CME FedWatch Tool [2]. Despite robust Swiss Q2 GDP growth of 1.9% quarter-on-quarter, analysts at Commerzbank remain cautious, attributing the performance to volatile net exports and expecting the Swiss National Bank (SNB) to prioritize inflation anchoring over immediate policy tightening [2].
The Japanese Yen (JPY) drew support from hotter-than-expected Tokyo CPI data for September and ongoing Bank of Japan (BoJ) discussions about potential rate hikes, with USD/JPY trading below 158.00 but remaining near weekly highs [3]. Market participants are alert to possible intervention by Japanese authorities to support the Yen, while the broader uptrend in USD/JPY remains intact, supported by strong US Dollar sentiment and high US Treasury yields [3].
The British Pound (GBP) edged 0.1% higher to around 1.3208 against the USD, but the GBP/USD pair remains under pressure, with analysts at OCBC highlighting the risk of an upside surprise in the NFP report that could reinforce Fed tightening expectations and keep Treasury yields elevated [4]. Bank of England (BoE) member Catherine Mann acknowledged policy missteps in response to energy shocks, suggesting the BoE should have acted sooner to control inflation [4]. Technical analysis indicates GBP/USD is likely to retest its year-to-date low near 1.3140 [4].
CONCLUSION
Currency markets are in a holding pattern as traders await the US Nonfarm Payrolls report, which is expected to significantly influence Federal Reserve policy expectations and drive further moves in the US Dollar and major currency pairs. While the USD has paused its rally, the outcome of the jobs data could reinforce or challenge the prevailing trend of USD strength, with potential implications for interest rates and cross-asset volatility.