Key points:

• The dollar index (DXY) remains close to an eight-week low ahead of a significant U.S. jobs report.
• Traders anticipate weaker jobs growth, which could influence future Federal Reserve rate cuts.

The dollar hovered close to an eight-week low on Friday, with market participants keenly awaiting the U.S. jobs report. This report is expected to provide important clues on the timing of potential Federal Reserve interest rate cuts.

The euro retained its overnight gains after the European Central Bank (ECB) reduced rates in a widely anticipated move, but the ECB provided few hints about future easing amid lingering inflation concerns.

Picture: DXY trading at 104.038 on the VT Markets app.

The U.S. dollar index (DXY), which tracks the greenback against the euro and five other major currencies, was little changed at 104.13 early in the Asian session. This level is not far from this week’s low of 103.99, marking the first time it has dipped below 104 since April 9.

Also read: Dollar maintains strength as market watches inflation and Fed rate moves

Index eyes weekly drop on weak data, potential Fed cuts

For the week, the index was on track for a 0.5% decline following a series of weaker macroeconomic data points. This data has brought the possibility of two quarter-point Fed rate cuts back into focus for this year. Traders are now positioned for a softer non-farm payrolls report later in the day, with the possibility that jobs growth might come in below the 185,000 median forecast of economists.

The Federal Open Market Committee (FOMC) is not expected to make any changes at its meeting next week. However, current market pricing suggests a 50 basis point cut by the end of December, with the first cut likely to occur in September.

Euro stable after ECB rate cut and inflation forecast adjustment

Picture: Euro remains stable as seen on the VT Markets app.

The euro (EURUSD) was stable at $1.0889 after a 0.2% gain in the previous session when the ECB reduced rates by a quarter point, initiating its easing cycle. However, ECB staff also raised their inflation forecasts, now expecting it to remain above the central bank’s 2% target until late next year.

Sterling (GBPUSD) was also little changed at $1.2792, remaining close to the week’s high of $1.2828, the strongest level since mid-March.

The dollar traded slightly stronger at 155.85 yen (USDJPY) but was on track for a weekly loss of nearly 1%. The Bank of Japan also decides on policy next week, and there is growing consensus in the market for an imminent reduction in the monetary authority’s monthly government bond purchases.

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