Dollar set for weekly gain

The dollar index held above 100 on Friday, on track to gain nearly 1% for the week as investors increasingly expect the Federal Reserve to hold rates steady in December.

A mixed US jobs report—delayed by the government shutdown—did little to shift those expectations, with markets largely interpreting the data as supportive of a cautious Fed.

Thursday’s September nonfarm payrolls report showed that job creation accelerated more than forecast, suggesting underlying resilience in hiring. However, the unemployment rate climbed to 4.4%, its highest level in four years, highlighting emerging cracks in the labor market.

With no further employment data scheduled before the December FOMC decision, this report effectively sets the tone for policymakers as they weigh the balance between slowing growth and still-elevated inflation.

Officials have remained measured in their recent remarks. Fed Governor Michael Barr reiterated that the central bank must move carefully on additional rate cuts, emphasizing that inflation—while easing—remains above the Fed’s 2% target.

Combined with lingering uncertainty from the multi-week government shutdown and gaps in other economic reports, investors see little incentive for the Fed to shift policy prematurely.

In currency markets, the dollar is on course to finish the week stronger against all major peers, with the largest gains posted versus the yen, New Zealand dollar, and Australian dollar. Persistently wide yield differentials, risk-averse sentiment, and expectations of a patient Federal Reserve have helped keep the greenback well supported, even amid uneven US data.

Looking ahead, traders will turn their focus to next week’s inflation releases and Fed commentary for further clarity on the policy trajectory.