US dollar falls 0.3% as September payrolls rise by 29,000

The Bloomberg Dollar Spot Index dropped 0.3% on Friday, recording its worst daily performance in a month after official data showed the United States created fewer jobs than expected in September. Nonfarm payrolls increased by 29,000 positions last month, well below the median forecast of 90,000 from economists surveyed by Bloomberg. The unemployment rate rose slightly to 4.2% from 4.1%.

Following the release, traders briefly pared bets on another Federal Reserve interest rate hike this year and stopped viewing a December increase as certain. By the end of the session, market pricing shifted back toward expecting an interest rate move before year-end, though the US currency remained lower on the day. Almost all Group of 10 currencies gained against the dollar on Friday.

Despite Friday's drop, the dollar gained about 0.8% over the week, marking its third straight weekly advance and its longest winning run since January 2025. Support earlier in the week came from higher oil prices driven by US tensions with Iran and political and fiscal concerns in France, which had boosted safe-haven demand. Speculative traders expanded their net long positions on the dollar in the week ended September 29, marking a second week of increasingly positive positioning according to data from the Commodity Futures Trading Commission.

In Europe, the French government presented plans this week to narrow its budget deficit through spending caps and higher tax revenue, raising investor focus on the country's debt. The euro rose 0.1% on Friday, but remained down more than 1% across the week against the dollar.

Erik Nelson, strategist at Wells Fargo, characterized the employment release as a mixed report that is weak enough to keep Federal Reserve rate hike bets in check, but not enough to hurt US growth expectations. Nelson added that the dollar's weakness should fade as focus returns to European risk premiums. Kit Juckes, chief currency strategist at Societe Generale, noted that the lack of resolution in the Middle East is driving energy prices higher, which is clearly negative for the euro and positive for the dollar in the short term.