U.S. Dollar Weakens as Soft Labor Data Fuels Fed Rate Cut Bets

The U.S. dollar slipped on Wednesday following private-sector employment data that signaled growing weakness in the labor market, reinforcing expectations of an upcoming Federal Reserve rate cut. According to payroll processor ADP, U.S. companies shed more than 11,000 jobs per week through late October, reflecting a steady slowdown in hiring.

The data prompted traders to increase bets on a December rate cut, with the CME FedWatch Tool showing a 68% probability of a 25-basis-point easing, up from 62% the previous day. The dollar index hovered near a one-week low at 99.46, while the euro held steady at $1.1586 and the British pound edged higher to $1.3149, distancing itself from recent lows.

Treasury yields also declined, with the 10-year yield dipping 3 basis points to 4.0791% and the two-year yield easing to 3.5596%. ANZ’s head of G3 economics, Brian Martin, noted that the balance of risks around inflation and employment supports a rate cut next month.

Currency strategist Sim Moh Siong of the Bank of Singapore said alternative data indicates a gradually cooling labor market, though not a sharp deterioration. Market sentiment now hinges on the expected U.S. government reopening, which could unlock delayed economic data by next week.

The potential resolution of the longest government shutdown in U.S. history, with a key House vote expected Wednesday, has lifted risk appetite globally. The Australian and New Zealand dollars rose slightly to $0.6529 and $0.5656, respectively.

Meanwhile, the yen weakened to 154.08 per dollar, pressured by risk-on sentiment and Japan’s plans for looser fiscal policy. Prime Minister Sanae Takaichi signaled extended fiscal flexibility and urged the Bank of Japan to be cautious with rate hikes, contrasting the Fed’s more hawkish stance.