The dollar is on track for significant weekly gains ahead of wage data

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Investing.com – The U.S. dollar fell slightly on Friday, falling from its highest level in six weeks ahead of the release of key labor market reports that could determine sentiment ahead of the Federal Reserve’s next meeting.

At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 101.667, just off the previous session’s six-week high.

The index rose nearly 1.5% this week, the highest since April.

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Payrolls directing dollar movements

The dollar was supported this week by fairly robust labor market data – and weekly – as well as safe-haven demand given rising tensions in the Middle East and the potential impact on the global economy.

Attention now turns to the release of the September report, which will likely be an indication of market expectations for further interest rate cuts by the Federal Reserve.

The U.S. economy is projected to have maintained a moderate pace of job growth in the final month of the third quarter, with employment rising to 147,000, while employment growth is close to August’s level of 4.2%.

ING is slightly more bleak than the consensus, expecting 115,000. wages and 4.3% unemployment rate.

“This probably does not change the picture for the Federal Reserve, which should still cut rates by 25 bp in November and rebound from 50 bp for now,” ING analysts said in a note. “However, there has already been a hawkish sell-off in the USD OIS curve this week and the dollar may correct downwards due to somewhat weak employment reports.”

The euro is weakening and the ECB sees further cuts

In Europe, the rate fell to 1.1027, with the euro falling more than 1% this week on further signs of weakening inflation in the euro zone, which overshadowed strengthening economic activity data and economic growth in France.

The European Central Bank has already started cutting interest rates, and typically hawkish politician Isabel Schnabel took a more dovish stance at the beginning of the week, raising expectations for another rate cut later this month.

“We remain moderately bearish on EUR/USD in the near term, even if our baseline expectations for rising unemployment in the US should provide some respite today,” ING added.

“Ultimately, less favorable interest rate differentials, volatile risk sentiment and a turbulent EU budget season mean EUR/USD may remain under pressure. The 1.1000 level is a big support level, so a break down could mean a correction reaches 1.09 relatively quickly.”

rose 0.2% to 1.3154, rebounding slightly after falling 1% on Thursday after Bank of England Governor Andrew Bailey said the central bank could aggressively cut interest rates if inflation pressures continue to ease.

Sterling has been on an upward trend and is still up more than 3% this year, largely on expectations that the BoE will keep interest rates higher longer than the Federal Reserve as inflation remains sticky.

Political uncertainty hits the yen

fell 0.4% to 146.28, after rising to a more than six-week low of 147.25 a day earlier, amid uncertainty over the Bank of Japan’s future monetary policy.

Despite today’s gains, the yen is still on track to fall almost 3% this week after comments from recent Prime Minister Shigeru Ishiba fueled expectations that interest rate hikes in Japan are a long way off.

remained largely unchanged at 7.0185, with Chinese markets currently closed until Tuesday as the country celebrates Golden Week.

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