Dollar ends week lower amid Fed outlook, US gov shutdown

The U.S. dollar fell against major currencies including the euro and Swiss franc on Friday as investors sought to balance the Federal Reserve's hawkish tilt against lingering concerns over the U.S. economy. U.S. Treasury yields were slightly lower amid the extended government shutdown in Washington. The Labor Department did not release an October jobs report as scheduled on Friday because of the shutdown. Such reports are normally closely watched.

The yield on benchmark U.S. 10-year notes fell 0.2 basis point to 4.091%. Investors were assessing the fallout from data that sounded an alarm bell for the global economic outlook: Chinese exports unexpectedly fell in October, recording their steepest drop since February, after months of frontloading U.S. orders to dodge tariffs.

The euro rose 0.15% against the dollar to $1.15564. It was on track to gain 0.26% for the week, recovering from two consecutive weeks of losses.

The euro is drawing support from expectations of a steady policy rate, while both the U.S. and the UK are expected to cut rates further in 2026. The greenback started a five-day winning streak last week after U.S. Federal Reserve Chair Jerome Powell acknowledged the risky nature of further easing moves, but it dropped sharply on Thursday on soft labor data.

"With the December Fed meeting more or less a coin toss which crucially depends on the labor market picture, the market is overreacting to any hints about the (U.S.) labor market," said Mohit Kumar, an economist at Jefferies, noting the lack of economic data as the government shutdown continues.

"Our view remains that Powell's comments from the last FOMC meeting suggest that the bar for a December cut is high," he added.

However, Chinese data suggests Beijing may have struggled to diversify exports away from the U.S., a trend that could stoke fears of mounting Chinese pressure on European markets. With the shutdown postponing the release of the monthly non-farm payrolls report, traders have turned to private sector data which showed the economy shed jobs in October in the government and retail sectors. Cost-cutting and the adoption of artificial intelligence also led to a surge in layoffs.

Barclays forecast earlier this week a 60% chance that the U.S. government shutdown - the longest in U.S. history - would end between November 11 and 21, while assigning a 15% probability that it could extend into December.

The dollar index, which measures the currency's strength against a basket of six peers, was down 0.12% at 99.56. It was set to fall 0.15%, ending two straight weeks of gains. "We have been calling for a dollar bounce for a while now and are still looking for some gains in the near term, as U.S. growth momentum remains strong while dollar sentiment is relatively weak," said TS Lombard analysts led by Andrea Cicione in an investor note.

A rush into safe-haven assets earlier this week supported the U.S. dollar, which has regained some of its safe-haven appeal, analysts said, even as the Japanese yen emerged as the market's preferred defensive play.

The dollar rose 0.25% against the yen to 153.44, but it was on track to fall 0.39% this week - snapping two straight weeks of gains.