The U.S. dollar traded higher on Wednesday, moving away from its lowest level since early October as markets reassessed the Federal Reserve’s future interest rate path following weaker labor market signals.
By 03:55 ET (08:55 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, was up 0.4% at 98.200. Earlier in the week, the index had fallen to its lowest point since the start of October.
Despite the rebound, the dollar remains under pressure this year, down more than 9% and on pace for its sharpest annual decline since 2017.
Signs of a cooling U.S. labor market
Fresh data released Tuesday showed U.S. nonfarm payrolls increased by 64,000 jobs in November, beating market expectations. However, the gain followed a steep downward revision of October figures, which now show a loss of 105,000 jobs.
At the same time, the unemployment rate climbed to 4.6%, its highest level since 2021, reinforcing concerns that momentum in the labor market is fading.
The mixed data has added uncertainty around the Federal Reserve’s policy outlook. According to analysts at ING, the combined October and November employment reports did little to challenge the Fed’s view that risks to the labor market remain skewed to the downside.
They also noted that Fed Chair Jerome Powell has repeatedly highlighted the unemployment rate as a key indicator of labor market balance. At 4.6%, unemployment now sits above the 4.5% median rate projected by Federal Open Market Committee members for the end of 2025.
Pound weakens after softer U.K. inflation data
In Europe, sterling came under heavy pressure. GBP/USD fell 0.8% to 1.3322 after weaker-than-expected U.K. inflation data boosted expectations of an interest rate cut by the Bank of England as early as Thursday.
Annual consumer price inflation in the U.K. slowed to 3.2% in November, down from 3.6% the previous month and marking its lowest level in eight months.
The Bank of England’s Monetary Policy Committee voted narrowly, 5–4, to keep rates unchanged at its last meeting. The latest inflation figures may tilt the balance toward policy easing.
A potential 25 basis point rate cut would lower borrowing costs to 3.75% from 4%, the lowest level since February 2023.
Euro steadies ahead of ECB decision
EUR/USD slipped 0.3% to 1.1717, with the single currency easing slightly but remaining close to the 12-week high reached in the previous session.
Investors are awaiting the European Central Bank’s policy decision later this week. While eurozone CPI data for November is due later in the day, it is unlikely to alter expectations that the ECB will hold interest rates steady at 2% for a fourth consecutive meeting.
ING analysts noted that recent hawkish remarks from ECB Executive Board member Isabel Schnabel had a strong impact on currency and rates markets. They warned that if Schnabel’s stance proves isolated and eurozone growth forecasts are not revised meaningfully higher, the euro could face renewed downside pressure.
Yen retreats ahead of Bank of Japan meeting
In Asia, USD/JPY rose 0.5% to 155.54, with the yen giving back recent gains as traders positioned ahead of the Bank of Japan’s policy meeting later this week.
The central bank is widely expected to raise interest rates in response to more persistent inflation pressures and improving wage growth. Such a move would mark another step away from Japan’s long-standing ultra-loose monetary policy and could ultimately support the yen.
Elsewhere, USD/CNY edged 0.1% higher to 7.0457, while AUD/USD slipped 0.2% to 0.6619, as weakness in U.S. equity markets weighed on broader risk sentiment.
