The U.S. dollar edged higher against major peers, including the Japanese yen, on Thursday as investors positioned ahead of Friday’s closely watched nonfarm payrolls report, a key release expected to shape expectations for the U.S. labor market and future interest rate policy.
Earlier data showed that new applications for unemployment benefits in the U.S. rose modestly last week, while layoffs remained subdued. Separate figures released on Wednesday by the U.S. Labor Department revealed that job openings fell more than expected in November and hiring slowed, reinforcing signs of a cooling labor market.
“The market is looking for clearer evidence on where the economy is headed,” said Marvin Loh, senior global market strategist at State Street. He added that consensus expectations still point to a weaker dollar over time, as investors anticipate further interest rate cuts from the Federal Reserve.
The dollar rose 0.12% against the Japanese yen to 156.925. The U.S. Dollar Index, which tracks the greenback against six major currencies, gained 0.08% to 98.802 after touching its highest level since December 10.
Markets are currently pricing in at least two Fed rate cuts this year, even though policymakers signaled in December that only one cut may be delivered in 2026. The Fed is widely expected to leave rates unchanged at its meeting this month. Meanwhile, the term of Fed Chair Jerome Powell is set to end in May.
Loh said the dollar could remain range-bound until there is greater clarity on whether the Fed will resume easing and whether future leadership changes at the central bank could lead to a more aggressive rate-cutting cycle.
Fiscal and political risks could also weigh on the dollar. The administration of Donald Trump may face pressure to refund more than $133.5 billion in tariffs if the U.S. Supreme Court rules existing duties unlawful. In addition, Trump’s call for a $1.5 trillion U.S. military budget for 2027 has raised concerns about rising debt levels and a higher risk premium for U.S. assets.
Euro zone data and geopolitical tensions in focus
In Europe, softer inflation data pushed the euro lower and sent German Bund yields to a one-month low. The single currency fell 0.09% to $1.1665 on Thursday, extending a 0.45% decline over the previous two sessions.
“Cooling European inflation supports a dovish outlook, while tensions linked to Greenland highlight Europe’s vulnerability and could fuel further euro selling,” said Olivier Korber, foreign exchange strategist at Societe Generale.
U.S. Secretary of State Marco Rubio said President Trump has not ruled out military options to pursue U.S. control over Greenland, prompting concern among European allies such as France and Germany.
Analysts noted that debate within the European Central Bank has shifted toward the possibility of a rate hike next year, even as inflation continues to ease and core price pressures soften.
Elsewhere in currency markets, the dollar gained 0.06% against the Swiss franc to 0.798. The Australian dollar slipped 0.38% to $0.66945, just below a 15-month high reached earlier in the week, while the Chinese yuan strengthened 0.15% to 6.984 per dollar.
Asian equities were mixed, with shares of Japanese chemical producers falling and Chinese rivals rallying after Beijing announced an anti-dumping investigation into chemical imports used in semiconductor manufacturing.
