The dollar slipped modestly on Friday as markets awaited US nonfarm payrolls and reacted to surprising inflation developments in Japan and the euro zone. Softer-than-expected US employment forecasts eased investor concern about an imminent acceleration in Federal Reserve tightening, while Tokyo price data and stronger euro zone inflation readings altered rate expectations for other central banks.
Global currency trading was relatively subdued as participants took stock of a continued sell-off in global sovereign bonds and a recent rise in energy prices, both of which have renewed worries that elevated costs could sustain inflationary pressures across major economies.
US dollar and payrolls
The dollar index and associated futures fell by about 0.2% on the session, though the US currency remained on course for roughly a 1% gain for the week, which would amount to a third straight weekly advance. The greenback continued to trade close to its strongest levels since April 2025, supported by underlying signs of US economic resilience that have left the Federal Reserve with room to adopt a hawkish policy stance.
Market attention was focused on the nonfarm payrolls report for September, due on Friday morning. Consensus projections pointed to an increase of 89,000 jobs compared with a 162,000 rise in August. The unemployment rate was expected to hold at 4.1%, the same as in August. Recent personal consumption expenditures data indicated a slight easing in inflation measures overall, but core inflation remained comfortably above the Fed's 2% target. Accordingly, any unexpectedly strong employment outcome could boost expectations for further US rate increases.
Tokyo inflation lifts the yen
The Japanese yen strengthened, driving the dollar/yen currency pair down by nearly 0.2%. Tokyo consumer price statistics showed both headline and core inflation moving to their highest readings since November 2025, a level clearly above the Bank of Japan's 2% goal. The figures reinforced market assumptions that the BOJ, which raised rates by 25 basis points in September, may continue to tighten policy in coming months.
That shift in expectations prompted demand for Japanese government bonds, which eased pressure on yields. The benchmark 10-year Japanese government bond yield fell by 1.25% after earlier in the week reaching 30-year highs.
Euro area inflation maintains ECB pressure
Across Europe, euro zone headline inflation surged to 3.8% in September from 3.2% in August, beating forecasts of 3.6%. The rise was driven mainly by higher natural gas and fuel prices. Core inflation, which excludes volatile energy and food costs, ticked up to 2.5% from 2.4% as service-sector prices rose.
Although the ECB might find some reassurance in the relatively contained core reading, the sharp acceleration in headline inflation well above the 2% objective complicates the policy outlook. It strengthens calls for further rate increases after two hikes over the summer. The euro moved up by less than 0.1% in early trading and was effectively flat on the day, hovering near its weakest level in more than a year. The single currency was poised to end the week down by more than 1.2%, which would represent its worst weekly decline since May 2026.
Market snapshot
- USD/JPY fell by about 0.34%.
- AUD/USD rose by 0.55%.
- USD/SGD decreased by 0.19%.
- USD/INR climbed by 0.39%.
- USD/KRW dropped by 1.12%.
- Dollar index measures such as DX and DXY eased by around 0.4% and 0.29% respectively.
Currency markets continued to reconcile diverging signals from inflation prints, bond market volatility and energy-driven price shocks. These cross-currents are keeping traders cautious as they weigh central bank reactions in the days ahead.