Why a Weak Jobs Report Could Signal the Dollar’s Next Move

The U.S. dollar faced renewed pressure in late August 2025 as markets awaited the release of the nonfarm payrolls data, a critical event expected to influence the trajectory of U.S. monetary policy. Mixed U.S. macroeconomic signals preceded the release, with initial jobless claims rising to 237,000 for the final week of August, compared to 229,000 in the prior week. The ADP employment report also showed a sharp slowdown, with only 54,000 jobs added, missing the Bloomberg consensus of +68,000 and significantly lower than July’s 106,000. Meanwhile, the ISM services index rose to 52.0, driven by stronger new orders, but the employment sub-index remained in contraction at 46.5, suggesting underlying labor market softness [1].

The Federal Reserve’s Beige Book noted little to no growth across most districts, reinforcing signs of a cooling economy. Fed President John Williams highlighted the delicate balance the central bank must maintain between inflation and employment risks, emphasizing that prolonged restrictive policy could pose a threat to employment. Despite these concerns, he noted that there have been no early second-round effects from tariffs on inflation. A rate cut in September is expected, though it may be a "hawkish" cut, reflecting the Fed’s cautious approach in navigating uncertain growth-inflation dynamics [1].

Markets are closely watching the upcoming nonfarm payrolls report, as a negative surprise or a sharp downward revision to July’s figure could exert downward pressure on the dollar. The outcome of this data release will be pivotal in determining whether the Fed can maintain its inflation control while avoiding an over-tightening of monetary policy that could further dampen employment growth. The labor market’s mixed signals and the central bank’s balancing act underscore the importance of this report as a barometer for the U.S. economy’s resilience and the Fed’s future policy direction [1].

The impact of these developments is already being felt in currency markets. The Malaysian ringgit, along with several other regional currencies, weakened modestly since early September as the dollar regained strength. However, analysts project a potential rebound for the ringgit by year-end as the U.S.-Malaysia rate differential narrows due to expected Fed rate cuts. The Bank of Malaysia (BNM) maintained its policy rate at 2.75%, in line with market expectations, stating that the current rate remains appropriate for sustaining growth and price stability. Analysts anticipate that BNM will keep rates unchanged through 2025 as it assesses the effects of its July rate cut and awaits clarity on the impact of Trump’s proposed semiconductor tariff plan [1].

In contrast, Thailand’s economic indicators suggest a different trajectory. The country’s CPI fell further into deflation, reaching -0.79% year-on-year in August, down from -0.7% in July. Core inflation remained subdued at +0.8% yoy. These figures highlight the country’s struggle with weak domestic demand and deflationary pressures. As growth risks rise, the Bank of Thailand (BoT) may be compelled to consider additional rate cuts. Despite ongoing political uncertainty, the baht has shown resilience, supported by strong foreign exchange reserves, including gold holdings [1].

The broader Asian foreign exchange market remains sensitive to U.S. policy developments and global trade dynamics. The anticipation of a Fed rate cut has fueled speculation that the dollar will continue to face downward pressure, providing an opportunity for non-dollar currencies to strengthen. This environment reflects the complex interplay between U.S. monetary policy, global trade tensions, and regional economic fundamentals. Investors and policymakers alike are watching closely to see whether the U.S. labor market can withstand these pressures and whether the Fed can achieve a balanced approach to its dual mandate of price stability and maximum employment [1].

Source: [1] Asia FX Talk - ISM services lift USD, markets brace for nonfarm payrolls catalyst 5 September 2025 (https://www.mufgresearch.com/fx/asia-fx-talk-ism-services-lift-usd-markets-brace-for-nonfarm-payrolls-catalyst-5-september-2025/)