The US dollar held steady on Thursday in a volatile week, as investors grappled with a fragile bond market and labor market data that reinforced expectations the Federal Reserve will cut interest rates this month.

With the Fed focused on employment indicators, Friday’s nonfarm payrolls report is set to be a key driver in shaping investor expectations for upcoming policy meetings.

Data released Wednesday showed job openings fell in July to their lowest level in 10 months, though layoff rates remained relatively subdued. Additional reports on private-sector hiring and monthly layoffs were due Thursday.

According to CME’s FedWatch tool, traders are now pricing in nearly a 100% probability of a rate cut this month, up from 89% a week earlier, and are expecting cumulative easing of 139 basis points by the end of next year.

The dollar traded slightly higher in relatively calm conditions, as investors refrained from making major moves ahead of Friday’s employment report.

The euro was steady at $1.1655, while sterling held at $1.3445, above Wednesday’s four-week low. The dollar index edged up to 98.23. Against the yen, the dollar gained 0.2% to ¥148.33.

Several Fed officials reiterated that labor market concerns continue to underpin their view that further rate cuts lie ahead, reinforcing market expectations of imminent action from the central bank. James Knightley, chief international economist at ING, said the Fed is “very likely to cut rates significantly in the coming months, with limited inflationary pressures coming from the labor market.” He added that ING expects 25 basis point cuts at the September, October, and December FOMC meetings.

The Fed will next meet on September 16–17.

Bond Market Concerns

This week, attention remained centered on the global bond market, where long-term yields climbed amid concerns over fiscal positions in major economies including Japan, the UK, and the US.

Lee Hardman, currency strategist at MUFG, noted: “Global bonds recovered some losses yesterday, providing temporary relief and helping to stabilize the FX market.”

A successful auction of 30-year Japanese government bonds on Thursday eased investor concerns, while dovish-leaning Fed remarks supported a modest rally in US Treasuries, pushing yields lower. The US 30-year Treasury yield slipped one basis point on the day to 4.888%, after touching 5% on Wednesday, its highest in about six weeks.

Uday Patnaik, head of Asian fixed income and emerging market debt at L&G Investment Management, said higher yields reflect weak fiscal dynamics across major advanced economies, where debt-to-GDP ratios exceed 100%. “The issue is that none of these countries are running primary surpluses, meaning revenues don’t cover even non-interest spending. Fixing this will require major spending cuts or revenue increases at a time when social and political pressures are rising,” he warned.

Other Currencies

The Australian dollar fell 0.28% to $0.6525, while the New Zealand dollar slipped 0.23% to $0.5865.

Gold prices declined in the European market on Thursday for the first time in eight sessions, pulling back from record highs amid profit-taking activity and a rebound in the U.S. dollar in the foreign exchange market.

The precious metal remains firmly positioned to potentially break through the $3,600 per ounce barrier for the first time in history, provided that upcoming U.S. economic data due Thursday and Friday show further signs of weakness in the labor market.

Price Overview

• Today’s gold price: Gold fell 1.35% to $3,511.62 per ounce, down from the session’s opening at $3,559.41, after hitting a high of $3,564.26.

• At Wednesday’s close, gold gained 0.75%, marking a seventh consecutive daily advance—its longest winning streak this year—and reached an all-time high of $3,578.61 per ounce.

• The record gains were supported by strong safe-haven demand amid rising concerns over global debt levels and renewed tensions surrounding Trump’s tariffs.

U.S. Dollar

The dollar index rose 0.15% on Thursday, resuming its advance toward a one-week high at 98.64, reflecting gains for the greenback against both major and minor currencies.

Investor focus remains centered on the dollar as the preferred alternative investment, amid mounting concerns over financial stability in Europe and the U.K. alongside growing debt burdens.

U.S. Interest Rates

• The U.S. Department of Labor reported on Wednesday that job openings fell to 7.18 million in July from 7.36 million in June, missing market expectations of 7.38 million.

• Following the data, CME Group’s FedWatch tool showed market pricing for a 25-basis-point rate cut at the September meeting jumped from 92% to 98%, while odds of no change fell from 8% to 2%.

• Expectations for a 25-basis-point cut in October also increased from 95% to 99%, with just 1% pricing in steady rates.

• Several Fed officials stressed that labor-market concerns continue to underpin their conviction for upcoming rate cuts. Fed Governor Christopher Waller said the central bank should move ahead with easing at its next meeting.

• To recalibrate these rate expectations, markets await further key labor data, including U.S. private payrolls and weekly jobless claims later today, and Friday’s August nonfarm payrolls report.

Outlook for Gold

• Brian Lan, Managing Director of Singapore-based Gold Silver Central, said: “We have seen some profit-taking, but gold remains in a bull market for now.”

• He added: “Rate-cut expectations and concerns about Fed independence will add further momentum to safe-haven demand. A move toward $3,800 or beyond in the near term would not be surprising.”

SPDR Holdings

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by 6.3 metric tons on Wednesday, bringing the total down to 984.26 metric tons, after retreating from 990.56 metric tons—the highest since August 16, 2022.

The euro declined in the European market on Thursday against a basket of global currencies, resuming losses that had paused temporarily yesterday against the U.S. dollar, once again approaching its lowest level in a week, as the U.S. currency was bought as the best alternative investment amid rising financial stability risks in Europe and the United Kingdom.

Consumer price data released this week showed entrenched inflationary pressures on monetary policymakers at the European Central Bank, which led to a decline in the probability of a European interest rate cut in September.

Price Overview

•Euro exchange rate today: the euro fell against the dollar by 0.1% to (1.1650$), from the opening level at (1.1661$), recording a high of (1.1669$).

•The euro ended Wednesday’s session up by 0.2% against the dollar, after earlier hitting a one-week low of 1.1608$.

•Aside from the recovery from lower levels, the euro rose following weak U.S. job openings data, which strongly boosted expectations of a U.S. interest rate cut in September.

U.S. Dollar

The dollar index rose on Thursday by 0.1%, resuming its climb toward a one-week high at 98.64 points, reflecting the continued rise of the U.S. currency against a basket of major and minor currencies.

Investor focus remains on buying the U.S. dollar as the best alternative investment, amid growing concerns about financial stability in Europe and the U.K. and rising debt levels.

According to the CME FedWatch tool: pricing for a 25-basis point U.S. interest rate cut at the September meeting is currently stable at 98%, with probabilities of keeping rates unchanged at 2%.

To reprice these expectations, investors are awaiting a series of important U.S. economic data later today, including private-sector jobs in August, weekly jobless claims, and the performance of the services sector during the past month.

European Interest Rate

•Data released this week showed an unexpected increase in core inflation in the euro area during August, highlighting continued inflationary pressures on the European Central Bank.

•Following this data, pricing for a 25-basis point European rate cut in September fell from 30% to 10%.

•Five sources told Reuters that the ECB is likely to keep rates unchanged next month, though discussions on further cuts could resume in the fall if the eurozone economy weakens.

•ECB President Christine Lagarde said recently in Jackson Hole that the tight monetary policies adopted by the bank in 2022 and 2023 did not lead to recession or sharp increases in unemployment as had historically occurred.

The Japanese yen declined in the Asian market on Thursday against a basket of major and minor currencies, resuming losses that had paused temporarily yesterday against the U.S. dollar, on its way again toward the lowest level in five weeks, due to the growing concerns currently about the political situation in Japan, the world’s fourth largest economy.

Less aggressive comments from a member of the Bank of Japan led to further weakness in the chances of raising Japanese interest rates before the end of this year, while awaiting more solid evidence regarding the path of monetary policy normalization in Japan.

Price Overview

•The exchange rate of the Japanese yen today: the dollar rose against the yen by about 0.2% to (148.27¥), from the opening price today at (148.03¥), and recorded the lowest level at (147.79¥).

•The yen ended Wednesday’s trading up by 0.2% against the dollar, in its first gain in the last four days, within a recovery move after earlier hitting the lowest level in five weeks at 149.14 yen, due to the acceleration of open selling operations.

•Apart from buying from low levels, the yen rebounded after weak data on job openings in the United States, which strongly boosted expectations of a U.S. interest rate cut in September.

Political Situation in Japan

The secretary-general of the ruling party in Japan, Hiroshi Moriyama, one of Prime Minister Shigeru Ishiba’s closest allies, announced his intention to resign from his post, a move that could deepen the crisis within the party and cast a shadow over Ishiba’s political future.

This development comes after mounting pressure on the prime minister following the recent election loss, as calls for his resignation have escalated, though he has so far stuck to his position and refused to step down.

Observers believe that Moriyama’s departure may weaken Ishiba’s internal base and increase the chances of him being subjected to more political pressure in the coming period.

These developments open the door for Sanae Takaichi as one of the leading candidates to succeed Ishiba, as she is known for her economic views supporting the policy of keeping domestic interest rates low, which reinforces expectations of a more accommodative direction in Japanese monetary policy if she assumes office.

Opinions and Analysis

•Kit Juckes, chief FX strategist at Société Générale, said: “On the surface, political uncertainty, and the possibility of Prime Minister Shigeru Ishiba resigning in the coming days or weeks, negatively affects the yen.”

•Lee Hardman, senior currency analyst at MUFG, said: “The aggravation of political uncertainty is likely to remain a barrier, while the absence of a hawkish signal from Deputy Governor Ryuzo Himino on Tuesday will encourage speculators to continue rebuilding short yen positions.”

Japanese Interest Rate

•Ryuzo Himino, Deputy Governor of the Bank of Japan, affirmed that the central bank “should continue raising interest rates,” but at the same time stressed that the uncertainty facing the global economy remains high, which means there is no urgency to increase currently low borrowing costs.

•Nakagawa, a member of the Bank of Japan, warned of the risks of trade policy and is looking to the Tankan report for guidance on the path of monetary policy normalization in the country.

•Pricing for the probability of the Bank of Japan raising interest rates by a quarter of a percentage point at the September meeting is currently stable below 30%.

In order to reprice those probabilities, investors await the release of more data on inflation, unemployment, and wages in Japan, in addition to monitoring comments from some Bank of Japan members.