Investing.com - The U.S. dollar retreated Wednesday after soft U.S. manufacturing data escalated concerns about a hard landing for the U.S. economy ahead of Friday's key jobs report.
At 04:45 ET (08:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.587, having climbed to a two-week high of 101.79 at the start of the week.
Dollar traders nervous ahead of payrolls
The U.S. ISM manufacturing survey came in weaker than expected on Tuesday, fanning worries about a hard landing for the world's biggest economy.
This resulted in a sharp selloff on Wall Street, with traders already nervous ahead of crucial monthly payrolls data on Friday, as risk sentiment was hit hard.
The safe-haven dollar received some support as a consequence, climbing initially to a two-week peak against the euro, before concerns about what this could mean to Federal Reserve policymakers ahead of their next policy-setting meeting later this month.
Markets are largely pricing in a 25 basis points cut when the Fed meets on Sept. 17-18, but weak labor market data could see the probability of a 50-bps cut rise substantially, to the dollar’s detriment.
Euro just off two-week low
In Europe, EUR/USD traded 0.1% higher to 1.1056, after dropping 0.2% on Tuesday, falling to a two-week trough amidst a broader sell-off in riskier assets.
Data released during the previous session showed eurozone manufacturing activity remained in contraction territory in August, while activity in the services sector also disappointed earlier Wednesday, even though it remained in expansion territory.
“Our preference remains for EUR/USD to hold above 1.1000 into … US ISM services and Friday’s payrolls. If we are right about a softer payroll figure, then we should see it trade back above 1.110 by the end of the week,” said analysts at ING, in a note.
GBP/USD climbed 0.1% to 1.3125, after weakening 0.2% overnight.
Sterling had a strong August, gaining over 2%, boosted by expectations that the Bank of England will keep interest rates high for longer than in the United States and the eurozone.
Yen helped by safe-haven status
In Asia, USD/JPY fell 0.6% to 145.20, with the safe-haven Japanese yen rallying following the worst sell-off in almost a month on Wall Street and big losses for Asian stocks.
USD/CNY traded 0.1% lower to 7.1138, with the yuan struggling to gain after growth in China's services sector activity slowed in August, a private-sector survey showed on Wednesday.
The Caixin/S&P Global services purchasing managers' index slipped to 51.6 in August from 52.1 in July.