Dollar falls as euro and yen rise with a weakening US labor market

Dollar Weakens Amid Labor Market Concerns

The U.S. dollar showed weakness against both the euro and yen on Tuesday, fueled by worries about a declining labor market following reports of job cuts by private employers last month.

According to ADP Research, preliminary estimates revealed that private companies shed an average of 11,250 jobs per week in the four weeks leading up to October 25.

This situation emerges as the federal government nears a reopening of the economy, with various economic indicators hinting at a possible slowdown.

Mark Chandler, chief market strategist at Bannockburn Global Forex in New York, commented, “While the government is shut down, the news flow is non-existent. Once it reopens, we’ll start to see more vulnerabilities.”

On Monday, the U.S. Senate agreed on a compromise that aims to end the longest government shutdown in history. This resolution could alleviate a standstill that has affected food benefits for millions, left many federal workers unpaid, and disrupted air traffic.

The bill now goes to the Republican-controlled House, where Speaker Mike Johnson expressed hope that it could pass as early as Wednesday before heading to President Donald Trump for approval.

Recently, the dollar had strengthened as traders anticipated fewer interest rate cuts due to a more optimistic growth outlook for the U.S. economy. Many Federal Reserve officials remain cautious about further rate reductions, citing inflation concerns.

However, on Tuesday, the euro climbed against the dollar, surpassing a downtrend line that had been in effect since September. Chandler remarked, “The underlying sentiment towards the dollar remains negative.”

The dollar index, which gauges the currency against a set of others, including the yen and euro, dipped by 0.32% to 99.32. In contrast, the euro rose 0.38% to $1.16.

The euro’s strength is supported by the European Central Bank’s stance on interest rates, expected to hold steady until 2027, while the Federal Reserve is anticipated to ease its policy.

Market expectations show a 67% probability of the Fed cutting interest rates in December.

Trading volume was relatively low on Tuesday, attributed to the U.S. bond market being closed for Veterans Day.

The dollar appreciated by 0.15% to 153.89 against the yen.

Meanwhile, the British pound saw a slight increase after previously dipping due to significant cooling in the UK labor market during the third quarter, marked by rising unemployment and slowing wage growth.