US Dollar Softens as Treasury Yields Dip and Labor Market Weakens

US Dollar momentum turned softer in Wednesday’s European session following a notable drop in the JOLTS Job Openings report, which signaled the weakest labor demand in over three years. This data release lowered US Treasury yields, intensifying negative pressure on the US Dollar. The Federal Reserve’s (Fed) upcoming policy decision looms, with Friday’s Nonfarm Payrolls (NFP) report expected to provide further insights into labor market health.

US Dollar Outlook Hinges on Key Economic Indicators

Ahead of the Fed meeting, two crucial economic reports are expected to shape the US Dollar’s performance. First, the third-quarter GDP data, set for release on Wednesday, is projected to show a steady 3% annualized growth for the US economy, contrasting with sluggish growth among other major economies. Second, the ADP Employment Report is anticipated to show a sharp decline in October job creation, potentially adding to concerns about a weakening labor market and putting further pressure on the US Dollar.

Markets are increasingly expecting the Fed to implement a quarter-point rate cut in the upcoming meeting, with December rate cut probabilities rising to 76.6%, up from 72% earlier this week, according to CME Group’s FedWatch tool. Thursday’s PCE Prices Index, the Fed’s preferred inflation gauge, is expected to reveal that core inflation pressures eased slightly, moving from 2.7% to 2.6% on an annual basis.

Finally, Friday’s NFP report is expected to underscore labor market challenges with a significant drop in payrolls. Such an outcome could weigh on speculative demand for the US Dollar, given the signals of slowing economic momentum and heightened anticipation of Fed rate cuts.

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