Dollar Weakens as Shutdown Pressures Mount; Yen Slips

The U.S. dollar weakened on Friday, heading for multi-week losses against major currencies. Investors grew cautious as the government shutdown clouded the outlook and delayed the release of critical data, including the September nonfarm payrolls report.

Shutdown Weighs on Dollar

The jobs report, expected Friday, was not published due to the government closure. Analysts warned the longer the shutdown lasts, the greater the concerns over its impact on the economy.

“The shutdown is basically extending concerns about the health of the U.S. economy. We’re almost flying blindly,” said Jayati Bharadwaj, FX strategist at TD Securities.

Euro, Sterling Gain Against Dollar

The euro rose 0.2% to $1.1739, heading for its best week in a month. Gains in the euro pushed the dollar index 0.1% lower to 97.77, on track for its weakest weekly performance since July.

The dollar also fell 0.3% against the Swiss franc to 0.7953 and slipped 0.4% for the week. Against the British pound, the greenback declined 0.2% to $1.3470, with sterling set for its largest weekly gain since August.

Services PMI Data Adds Pressure

Fresh data also weighed on sentiment. The ISM non-manufacturing PMI dropped to 50.0 in September from 52.0 in August, signaling stalled growth in the services sector, which accounts for two-thirds of U.S. economic activity.

Dollar-Yen Pair in Focus

The yen slipped after earlier gains. The dollar edged 0.1% higher to 147.44 yen but remained set for a 1.4% weekly rise, its strongest since May.

Bank of Japan Governor Kazuo Ueda struck a cautious tone on the global outlook, lowering expectations of a near-term rate hike. Markets also focused on Japan’s ruling party leadership election, set to determine the next prime minister.

Fed Policy Outlook

In the U.S., labor market data showed signs of cooling. The ADP report revealed private payrolls dropped by 32,000 in September. Economists expect the Federal Reserve to cut rates twice more this year.

Traders see a near-certain chance of a 25-basis-point cut in October, with an 84% probability of another reduction in December, according to CME’s FedWatch Tool. Dallas Fed President Lorie Logan said the central bank acted appropriately last month to shield the economy but cautioned she was not eager to push rates lower without clearer signals.