Dollar tentative as traders mull December Fed cut on weakening US jobs market

By Rae Wee SINGAPORE (Reuters) -The dollar nursed losses on Wednesday after private-sector U.S. jobs data stoked worries about labour market weakness, with investors also bracing for an imminent U.S. government reopening that is expected to unleash a backlog of economic releases. Overnight, payroll processor ADP said that U.S. firms shed more than 11,000 jobs a week through late October, underscoring how hiring trends are evolving and pointing to further weakening in a labour market being closely monitored by Federal Reserve policymakers. The greenback fell in the aftermath of the data release, though recovered some of those losses in Asia trade on Wednesday, pushing the yen to a fresh nine-month low of 154.595 per dollar. The euro was down 0.09% to $1.1572 and sterling fell 0.14% to $1.3131. "The alternative data, I think, overall points to a softer labour market picture… but whether we're seeing a worsening deterioration in the U.S. labour market, I think that remains an open question," said Sim Moh Siong, a currency strategist at Bank of Singapore. "I think the broad set of data suggests that the labour market is cooling, but only gradually so, and I think we should see some confirmation of that from the return of official data likely by next week, with the reopening of the U.S. government." Traders are currently pricing in a roughly 67% chance that the Fed would ease rates by 25 basis points next month, though are awaiting an imminent reopening of the U.S. government for further clues as a raft of economic data is set to be released. The benchmark 10-year U.S. Treasury yield was down nearly 3 bps at 4.0830% in Asia, after trading was closed in the U.S. on Tuesday owing to the Veterans Day holiday. The two-year yield similarly fell slightly earlier in the session, before recovering those losses to trade flat at 3.5596%. "We remain of the view that the balance of risks to the labour market, inflation and consumption favour a 25-bp rate cut next month," said Brian Martin, ANZ's head of G3 economics, in a note. Fed policymakers have in recent times struck a more measured tone on further easing, citing the absence of key economic data due to the U.S. government shutdown as one reason for caution. The Republican-controlled House of Representatives is due to vote on Wednesday afternoon on a compromise that would restore funding to government agencies and end a shutdown that started on October 1. The breakthrough has also lifted risk currencies like the Australian and New Zealand dollars. The Aussie was last down 0.17% at $0.6517, though remains up 0.3% for the week thus far. The kiwi eased 0.13% to $0.5648. A top Australian central banker said on Wednesday that there was increasing debate about whether the current cash rate of 3.6% is restrictive enough to keep inflation in check, adding that the question is critical for the policy outlook. The safe-haven yen has meanwhile been bruised from the overall risk-on market sentiment, down nearly 0.8% for the week so far. The yen also faced further headwinds from expectations of greater fiscal largesse in Japan, after Prime Minister Sanae Takaichi said she would work on setting a new fiscal target extending through several years to allow more flexible spending, essentially watering down the country's commitment to fiscal consolidation. She renewed calls for the Bank of Japan to go slow on interest rate hikes, in sharp contrast to the hawkish tilt from Fed policymakers. (Reporting by Rae WeeEditing by Shri Navaratnam)

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