Dollar Edges Higher as Payrolls Data and Tariffs Ruling Set the Tone

The U.S. dollar edged slightly higher on Friday, although trading remained subdued as investors awaited the release of the closely watched monthly employment report and a potential Supreme Court decision regarding President Donald Trump’s use of emergency powers to impose tariffs.

As of 04:05 ET (09:05 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, was up 0.1% at 98.795. The index was on track to post a weekly gain of around 0.6%.

Payrolls and Tariffs Ruling in Focus

The U.S. nonfarm payrolls report for December is due later in the session and is expected to show a modest increase in employment as data distortions caused by the recent government shutdown begin to fade.

The figures are widely expected to influence the Federal Reserve’s outlook on interest rates. Signs of continued strength in the labor market would likely reduce the central bank’s urgency to deliver additional rate cuts.

Market observers noted that the unemployment rate may attract even greater attention than payroll growth, reflecting the Federal Reserve’s focus on labor market slack. The jobless rate is expected to ease back to 4.5% from 4.6%. Combined with payroll gains in the range of 50,000 to 100,000 jobs, such an outcome would likely rule out an interest rate cut in January and keep the probability of a March cut below 50%.

Also in focus on Friday is a potential ruling by the U.S. Supreme Court on the legality of the Trump administration’s tariff policy. Many market participants expect the court to rule against the tariffs.

Expectations have grown that the jobs report will be strong enough to keep the Federal Reserve on hold for longer, while a ruling against the tariff policy would remove some trade-related uncertainty. Together, these developments are seen as modestly supportive for the U.S. dollar, which has already absorbed some positive factors in recent sessions.

Market participants said that the outcome of these events is likely to set the tone for foreign exchange markets for some time.

Euro Slips Modestly

In Europe, the euro weakened slightly, with EUR/USD trading 0.1% lower at 1.1647. The move followed the release of data showing that German exports unexpectedly fell in November, while industrial output surprised to the upside.

Exports from Europe’s largest economy declined by 2.5% in November compared with the previous month. At the same time, industrial production rose unexpectedly, increasing by 0.8% month-on-month despite forecasts for a decline.

Eurozone retail sales data for November are scheduled to be released later in the session.

Despite the recent weakness, some analysts noted that the euro appears meaningfully undervalued in the short term. However, they cautioned that downside risks remain, with support seen around the 1.1600 level.

The British pound also edged lower, with GBP/USD down 0.1% at 1.3418, retreating from the near four-month high reached earlier in the week.

Yuan Gains After Inflation Surprise

In Asia, the U.S. dollar strengthened against the Japanese yen, with USD/JPY rising 0.5% to 157.59, climbing toward two-week highs. The move came despite data showing that Japanese household spending unexpectedly increased in November, a trend that could support inflation going forward.

At the same time, concerns related to diplomatic tensions with China weighed on sentiment, after Beijing implemented additional economic measures against Japan.

The Chinese yuan strengthened modestly, with USD/CNY trading slightly lower at 6.9821. The move followed data showing that China’s consumer price index rose in December to its strongest level in nearly three years, supported by improving private consumption and higher food prices.

Producer price inflation also declined at a slower-than-expected pace, fueling some optimism that China’s deflationary pressures may be easing.

Elsewhere, the Australian dollar weakened, with AUD/USD slipping 0.3% to 0.6678. The currency continued to retreat from a 15-month high after weaker-than-expected trade data earlier in the week.