US dollar holds ahead of payrolls report

The dollar index rose 0.3% to 101.74, while the euro slipped 0.2% to $1.1198 and sterling eased 0.1% to $1.3433 even after the Bank of England delivered a rate increase in line with expectations. The yen, often the first beneficiary of risk aversion, strengthened to as much as 157.27 per dollar, its best level in a week, before paring gains.

Treasury yields initially fell as investors piled into U.S. government debt, then recovered later in Asian trading. The benchmark 10-year yield rose 2 basis points to 4.8531%, after earlier losses, while the two-year yield, more sensitive to Fed expectations, was last up 1 basis point at 4.4873%. That tug of war is exactly why the payrolls release matters: a softer labor reading would pull yields lower and could weaken the dollar, while a resilient report would reinforce the case for keeping policy restrictive.

The market is also digesting a broader risk-off tone tied to concern over AI valuations and possible regulatory pressure on data-center expansion. Asian technology-heavy markets sold off sharply, reinforcing the dollar’s appeal relative to more cyclical and risk-sensitive currencies. Adalytica’s US Dollar Trade Signals snapshot showed sentiment for the dollar at 92, labeled “Extreme Greed,” underscoring how crowded the safety trade has become.

For investors, the message is straightforward: the next decisive move in FX likely hinges on whether the U.S. labor market remains strong enough to keep Fed easing expectations in check. If payrolls and wage growth come in firm, the dollar should stay supported and high-beta trades may struggle. If the data disappoints, the current defensive bid could unwind fast, creating opportunity in currencies and assets that have been punished by the flight to safety.

The trade now is less about chasing the dollar and more about positioning for the shock that jobs data could deliver. In a market already leaning cautious, the payrolls report is the catalyst that could decide whether the greenback extends its resilience or gives back its recent gains.