The dollar slipped on Friday after earlier posting gains following a U.S. jobs report that underperformed expectations but was solid overall, as investors remained cautious about political risk in the United States and ongoing trade negotiations with China.
The greenback hit session highs against the yen and euro following the jobs report, after trading lower for most of the session. But by afternoon trading, the dollar's rally faded.
Data showed that U.S. nonfarm payrolls increased by 136,000 jobs last month. August data was revised to show 168,000 jobs created instead of the previously reported 130,000 positions. Economists polled by Reuters had forecast payrolls would increase by 145,000 jobs in September. The unemployment rate dropped to a near 50-year low of 3.5%.
"Given that market expectations have shifted after the ADP (private payrolls) and ISM (manufacturing and services), people were bracing for something worse than this. So this is in the ballpark of what is acceptable," said Shaun Osborne, chief market strategist, at Scotiabank in Toronto. "But there are other issues here for the dollar aside from the Fed easing, such as the U.S. political backdrop. And we're still looking at the funding tightness issue," he added.
A drop in U.S. unemployment in September pushed traders of U.S. short-term interest rate futures on Friday to pare bets the Federal Reserve will cut rates at both of its two upcoming meetings.
The jobs data was initially a big relief to dollar bulls after two weak reports this week that heightened U.S. recession fears. On Thursday, a survey from the U.S. Institute for Supply Management (ISM) showed its non-manufacturing activity index falling to 52.6 in September, the lowest since August 2016.
The non-manufacturing data came on the heels of ISM's manufacturing survey on Tuesday that showed activity plunging to more than 10-year lows. The jobs report impact, however, was short-lived as investors grappled with U.S. political tensions.
Diplomatic texts released late Thursday showed that U.S. officials pressured their Ukrainian counterparts to launch investigations that could benefit President Donald Trump's personal political agenda in exchange for a meeting between the two countries' leaders. The exchanges were released by Democrats in the House of Representatives as part of an impeachment investigation to determine whether Trump pressed Ukraine to probe former Vice President Joe Biden and his son, Hunter Biden, in connection with Ukrainian gas company Burisma. Trade talks with China were also in focus, with both U.S. and Chinese officials set to meet next week.
In early afternoon trading, the dollar index was down 0.1% at 98.805, slipping against the yen to 106.82 yen. The euro gained 0.2% versus the dollar to $1.0982.