Highlights:

– The U.S. dollar holds firm as Treasury yields recover from recent lows.
– Investors await the August U.S. jobs report for signals on Federal Reserve policy.
– Market sentiment remains cautious amid global growth concerns and policy uncertainty.

The dollar maintained its footing on Friday, September 5, as U.S. Treasury yields found support after a volatile week in global bond markets. Investors are turning their focus toward the upcoming nonfarm payrolls report, which could provide fresh insight into the Federal Reserve’s next policy steps. The cautious tone reflects lingering uncertainty over the trajectory of inflation, growth, and interest rates.

Dollar Resilience and Bond Market Dynamics

The U.S. dollar index, which tracks the greenback against a basket of major currencies, hovered near 104.2 in early trading, little changed from the previous session. The steadiness comes as benchmark 10-year Treasury yields stabilized around 4.1%, reversing part of the decline earlier in the week. Analysts note that the interplay between currency markets and bonds remains central: lower yields tend to pressure the dollar, while signs of stability support the U.S. currency.

In recent months, expectations of Fed rate cuts have softened, with markets now pricing in only modest easing through early 2026. The recalibration has kept the dollar supported against the euro and yen, though volatility has risen as traders adjust positions ahead of labor market data.

Global Market Implications

The dollar’s trajectory remains a critical factor for global markets. A firmer greenback tightens financial conditions across emerging economies, many of which carry significant dollar-denominated debt. In Asia, currencies such as the yen and yuan remain under pressure, while in Europe, the euro has struggled to gain traction amid weak industrial output.

For Israel, the shekel has shown relative resilience, trading near 3.65 per dollar, as local investors weigh both global monetary conditions and domestic political risks. Israeli institutional investors with exposure to global equities and bonds remain sensitive to moves in the U.S. dollar, given its role in shaping cross-border capital flows and energy import costs.

Jobs Data and Fed Policy Outlook

All eyes are now on the U.S. nonfarm payrolls release, which economists expect will show job gains of around 160,000 for August, down from 187,000 in July. Wage growth and labor force participation will also be closely watched as indicators of inflationary pressure. A stronger-than-expected report could reinforce the Fed’s cautious stance on rate cuts, while weaker data may revive speculation of earlier easing.

Market positioning reflects this uncertainty: futures markets suggest roughly a 60% probability of a rate cut by December 2025, though the path beyond remains unclear. The bond market’s reaction to payrolls will likely set the tone for currency trading in the weeks ahead.

Looking forward, the interplay between labor market data, inflation trends, and central bank guidance will be decisive for both bonds and the dollar. With global growth forecasts under revision and geopolitical risks still present, investors will need to navigate a complex macroeconomic landscape. The upcoming jobs report may not provide all the answers, but it will be a key test for market expectations as the Fed calibrates its next steps.