The US dollar held steady on Thursday (September 4) amid a volatile week as investors grappled with a fragile bond market and data showing a weakening labor market, which has reinforced expectations that the Federal Reserve will cut interest rates this month.

With the Fed's focus on employment, Friday's key employment report will help set expectations for the central bank's next few policy meetings. Wednesday's data showed job openings fell to a 10-month low in July, although layoffs remained relatively low. Separate surveys of private-sector employment and monthly layoffs will be released on Thursday.

Traders are pricing in a nearly 100% chance the Fed will cut interest rates later this month, up from 89% a week ago, according to CME FedWatch. They also expect another 139 basis points of easing by the end of next year.

The dollar edged higher in relatively quiet trading, reflecting investor caution in making any major moves ahead of Friday's payrolls report. The euro held firm at $1.1655, as did sterling at $1.3445, just above Wednesday's four-week low.

The dollar index, which measures the US currency against six other currencies, was slightly higher at 98.23. The Japanese yen weakened, pushing the dollar up 0.2% to 148.33.

Several Federal Reserve officials said labor market concerns continue to reinforce their view that interest rate cuts are still on the cards for the central bank, raising expectations of an imminent rate cut.

James Knightley, chief international economist at ING, said the Fed is likely to cut rates significantly in the coming months with little inflationary pressure from the labor market. "We expect them to cut 25 basis points at the September, October, and December FOMC meetings," he said. The Fed is scheduled to meet on September 16 and 17. (alg)

Source: Reuters