Dollar Hits Five-Week Low Ahead of U.S. Jobs Data

The U.S. dollar slipped to its lowest level since late July on Monday as investors awaited key labor market data due this week, which could shape the Federal Reserve’s path toward monetary easing.

Traders were also digesting last Friday’s U.S. inflation figures, a court ruling that deemed most of Donald Trump’s tariffs illegal, and growing tensions between the U.S. president and the Fed over attempts to remove Governor Lisa Cook.

According to the CME FedWatch Tool, currency markets are pricing in a nearly 90% chance of a 25-basis-point rate cut in September, and close to 100 basis points of easing by autumn 2026.

Against a basket of major currencies, the dollar fell 0.22% to 97.64, having touched 97.552 earlier—the weakest since July 28. It ended August with a 2.2% monthly loss.

Attention now turns to Friday’s nonfarm payrolls report, preceded by job openings and private payroll data. Analysts note that the U.S. economy is no longer outperforming as it did over the past decade, supporting a weaker dollar. Signs of further labor market softness would reinforce that view.

Societe Generale economist Klaus Baader said:
“Material weakness in the data would point to an even stronger Fed response than markets currently expect. But if the May/June weakness proves a statistical mirage, rate cuts may look unwarranted, given the near certainty of rising inflation over the next year or two.”

Some analysts still see a possibility of a 50-basis-point cut by the Fed later this month.

The euro climbed 0.35% to $1.1724, while sterling rose 0.18% to $1.3528. U.S. markets were closed on Monday for a holiday.

Political risks also weighed on sentiment, as France’s government faces a possible defeat in a confidence vote over sweeping budget cuts. Analysts said such risks typically impact currencies only if contagion spreads across the eurozone—something not yet evident.

With the U.S. engaged in talks with major trading partners, investors are closely monitoring trade policy. “We don’t expect much market impact from the court ruling,” said Jefferies economist Mohit Kumar. “The case will go to the Supreme Court, where a decision in Trump’s favor is more likely.”

Concerns over the Fed’s independence have added pressure on the dollar, as Trump intensifies efforts to exert greater influence over monetary policy.

George Saravelos, head of FX strategy at Deutsche Bank, said:
“In the long run, both higher inflation in the U.S. and a higher risk premium on the dollar should reflect growing risks of fiscal dominance, though neither has materialized yet.”

“Fiscal dominance” refers to a situation in which central banks are pressured to ease policy in order to help finance large government deficits.

Against the yen, the dollar held steady at 147.00 after a 2.5% drop in August.

Onshore yuan traded at 7.1326 per dollar, hovering near a 10-month high, supported by strong central bank inflows and a rally in domestic equities—even as China’s broader economy struggles for a firm recovery.

A private-sector survey on Monday showed Chinese factory activity expanding at its fastest pace in five months in August, driven by new orders. By contrast, an official survey released Sunday reported a fifth straight month of contraction.