Dollar slips lower in low volatility; euro edges higher

Investing.com - The U.S. dollar edged lower Friday in low volatility given the U.S. government shutdown, as traders assessed the potential for more Federal Reserve interest rate cuts. 

At 04:30 ET (08:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 97.475, slipping after gains during the previous session.

U.S. government slowdown hits volatility

The U.S. government shutdown has all but quashed hopes that the all-important monthly nonfarm payrolls report will be published as it was originally intended to be on Friday. 

The Federal Reserve has been keeping close tabs on labor market figures, with policymakers mulling over a potential series of rate reductions to help boost hiring and investment.

A Chicago Fed report that combines private and available public data estimated the September jobless rate was 4.3%, the same as in August.

But other data has pointed to more of a deterioration in the labor market, including the ADP National Employment report on Wednesday showed private payrolls decreased by 32,000 in September, boosting expectations that the Federal Reserve will cut interest rates two more times this year.

That said, the lack of fresh official data has hit trading ranges.

“Traded volatility is falling across financial markets,” said analysts at ING, in a note. “Investors have settled into the view that the Fed will likely cut rates twice more this year and probably another 50bp in 2026. The U.S. interest rate volatility – so often the driver of volatility in other asset classes – is just not here at the moment.”

Euro gains after PMI data

In Europe, EUR/USD traded 0.2% higher to 1.1735, after data showed that growth in the eurozone services sector accelerated slightly in September to an eight-month high.

The HCOB Eurozone Services PMI Business Activity Index rose to 51.3 in September from 50.5 in August, S&P Global reported. That suggested a fourth consecutive month of expansion as readings above 50.0 indicate growth in activity.

“The ECB script at the moment remains one of the 2.00% deposit rate being at a good place, but that the central bank would not hesitate to act if needed,” said ING. “That threat to act probably means one further rate cut should inflation undershoot at a time of weak activity. However, the market struggles to price another 25bp cut in this cycle.”

GBP/USD traded 0.1% higher to 1.3460, with sterling benefiting from dollar weakness.

Yen slips as Ueda flags caution 

Elsewhere, USD/JPY traded 0.1% higher to 147.43, after Bank of Japan Governor Kazuo Ueda flagged caution over the economy and trade tariffs, suggesting that the central bank would not raise interest rates immediately. 

While Ueda said the BOJ will continue to increase rates if economic data supports the move, his cautious remarks weighed on the yen.

However, the pair was set to decline almost 1.4% over the course of the week with the Japanese yen benefiting from its status as a safe-haven asset amid global uncertainties.

USD/CNY traded unchanged at 7.1196, with the Chinese markets closed for the Golden Week holiday, and AUD/USD gained 0.2% to 0.6608, with the Reserve Bank of Australia having left interest rates unchanged this week.