Dollar Steadies Near Multi-Month Lows as Traders Await Key Jobs Data

The U.S. dollar hovered near multi-month lows on Friday, capping a week of notable losses as traders unwound hawkish bets following dovish-leaning comments from a key Federal Reserve official. The market's attention has now pivoted to the critical U.S. non-farm payrolls report, which could heavily influence the Fed's upcoming interest rate decision.

Fed Officials Temper Rate Hike Bets

The dollar's downturn was primarily triggered by remarks from Federal Reserve Governor Christopher Waller on Thursday. Waller indicated that recent economic data showed encouraging signs of cooling inflation and suggested he would favor holding interest rates steady at the September 15-16 policy meeting if that trend continues.

His comments, which echoed a cautious tone from New York Fed President John Williams, prompted a swift repricing in financial markets. According to futures markets, the probability of a 25-basis-point rate hike this month has fallen to approximately 50%, down from a peak of nearly 68% earlier in the week. The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was on track for a 0.7% weekly loss after hitting its lowest level since May.

All Eyes on August Jobs Report

Currency markets are now bracing for the release of the U.S. non-farm payrolls (NFP) report for August. The data serves as the first major test of Waller's dovish pivot and will set the stage for next week's Consumer Price Index (CPI) inflation data.

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Economists forecast the economy added approximately 56,000 jobs in August, a rebound from an unexpected loss of 23,000 in July. The unemployment rate is expected to remain unchanged at 4.1%. A weaker-than-expected report would likely reinforce the case for the Fed to pause, further pressuring the dollar. Conversely, a strong jobs number could reignite hawkish expectations and trigger a sharp dollar rally as traders cover short positions.

Yen Surges on Intervention and BOJ Speculation

Elsewhere, the Japanese yen paused on Friday after a dramatic surge earlier in the week that fueled widespread speculation of intervention by Japanese authorities. While no official intervention has been confirmed, the yen is poised for a weekly gain of 2.3%—its strongest since late July. The rally is also supported by growing expectations that the Bank of Japan will raise interest rates at its September 17-18 meeting.

Meanwhile, the euro held steady against the dollar at $1.1600, on pace for a 0.3% weekly gain. The single currency has found support from a narrowing of the interest rate differential between U.S. and European government bonds.