Dollar hovers near 7-week low as weak data, Mideast talks precede payrolls

The US Dollar Index hovered around 99.7 on Thursday, lingering near its lowest level in several weeks as traders adopted a cautious stance ahead of Friday's nonfarm payrolls report. Softer-than-expected employment and services data from Wednesday reinforced a bearish undertone, while diplomatic developments in the Middle East added a risk-on tilt to global markets.

Weak Data Weighs on Greenback

Wednesday's ADP private payrolls report showed a gain of just 44,000 jobs in July, well below the 65,000 consensus expectation, while the ISM services index edged up only slightly to 54.1, missing forecasts of 54.5. The services employment subindex fell sharply to 47.5, which ING's FX strategist Francesco Pesole said "points to some mild downside risks for tomorrow's payrolls".fxstreet+1

Fed rate expectations have remained relatively steady, with 14 to 17 basis points of tightening priced for September and 30 to 35 basis points for December. Markets are pricing roughly a 54% probability of a rate hike at the September meeting, according to Barchart, though London Business News reported the probability of a hold has risen to 45%. Kansas City Fed President Jeff Schmid and Minneapolis Fed President Neel Kashkari both struck hawkish tones on Tuesday, with Schmid saying he does not view current policy as restrictive and Kashkari arguing the Fed should begin raising rates incrementally.barchart+2

Geopolitics and the Strait of Hormuz

The dollar's decline this week has been compounded by improved risk sentiment tied to the Middle East. Iran said it reached a preliminary agreement with Oman on a shipping route through the Strait of Hormuz, a waterway handling roughly a fifth of global oil shipments. President Trump said an agreement was close, though Iran maintained it is not negotiating directly with Washington. Brent crude has fallen roughly $15 per barrel this week on the easing tensions.investing+2

Separately, violence in southern Lebanon continued, with Al Jazeera reporting Israeli military actions on August 5 amid ongoing talks between Lebanon and Israel over a phased troop withdrawal.aljazeera

All Eyes on Friday's Payrolls

Pesole noted that "positive headlines on that topic may not generate sustainable USD weakness" given the payrolls report looming Friday. Asian currencies were little changed on Thursday, with the yen trading flat near 157.7 per dollar and the Australian dollar pulling back from a seven-week high as profit-taking set in. Weekly jobless claims data due later Thursday could offer a final signal before the main event, with a soft reading likely reinforcing expectations that the Fed may pause its tightening cycle.economies+2