Dollar Firms in Thin Holiday Trade as Fed Hike Bets Build

The Dollar Index trades at 99.1040, up 0.14% from Friday's New York close, in a session that's still open and unusually thin: both US and Canadian markets are closed today for the Labor Day holiday, so the North American session that would normally open at 22:00 Sydney time won't run, leaving the current move to reflect overnight FX trading rather than a full liquid session. The modest DXY gain extends Friday's dollar strength, which followed the US August employment report: nonfarm payrolls rose 162,000 against a roughly 56,000 forecast (FXStreet), with unemployment holding at 4.1% (BLS). That beat revived bets on a September Fed rate hike and is the dominant thread running through today's majors — desk notes tag sentiment as bearish for the euro and pound, and bullish for USD/CAD, all on the same dollar-strength logic.

Friday's session — the last full one before today's US holiday closure — saw Treasury yields tick higher across the curve at normal liquidity: the 10-year added 2.2bp to 4.784%, the 5-year rose 4.1bp to 4.550%, the 3-month added 1.7bp to 3.757%, and the 30-year edged up 0.3bp to 5.246%. The moves followed the stronger-than-expected August payrolls print, which desk notes say revived September hike bets — money markets were pricing roughly a 61% probability of a hike by Friday evening, up from 54% the previous day (FXStreet). That sits against the current Fed funds target of 3.50-3.75%, where the live 2026 policy question is whether the Fed hikes, not whether it cuts. Desk notes also flag hawkish signalling from Fed Chair Kevin Warsh. No Fed events are scheduled today; US markets are closed for Labor Day.

EUR/USD trades at 1.1614 (-0.10%), still digesting Friday's slide on the payrolls beat; Eurostat publishes the third estimate of Q2 GDP and revised employment change data today, with the ECB's meeting not until September 9-10. GBP/USD sits at 1.3516 (-0.06%); no tier-one UK data lands today, and BoE Governor Andrew Bailey testifies to the Treasury Committee tomorrow ahead of the September 17 rate decision. USD/JPY is at 156.24 (+0.28%), extending Friday's bounce off a one-month low. USD/CAD trades at 1.3836 (+0.31%), with both US and Canadian markets closed for the Labour Day holiday today.

USD/JPY trades at 156.24, up 0.28% and extending Friday's bounce, when the pair firmed to around 156.23 (+0.29%, Trading Economics) after the hot US payrolls print reignited Fed hike bets. That bounce came despite the yen logging its strongest week in a month: USD/JPY had tumbled from near 160 to a one-month low near 155.28 on September 2-3 after BoJ Policy Board member Hajime Takata said the central bank needs 'a broad range of options, not just 0.25%,' floating a possible 0.5% move and a faster hiking pace ahead of the September 17-18 BoJ meeting. Desk sentiment reads neutral: rising BoJ hike bets are pulling one way, firming Fed hike bets the other, with Vice Finance Minister Atsushi Mimura still on record 'on a state of heightened alert' over yen moves. Today's JST calendar carries Japan's preliminary Leading Indicators, forecast 117.9% versus 116.4% previously.

Japan's preliminary Leading Indicators (15:00, forecast 117.9% vs. 116.4% previous) lead the calendar. Europe follows with German Industrial Production m/m (16:00, forecast 0.1% vs. 0.2% previous), the Lloyds HPI m/m for the UK (16:00, forecast 0.2% vs. 0.0% previous), Swiss Foreign Currency Reserves and the Unemployment Rate (both 17:00, jobless forecast 3.1% vs. 3.1% previous), Sentix Investor Confidence (18:30, forecast 2.1 vs. 0.9 previous), and the euro area's Final Employment Change q/q and Revised GDP q/q (both 19:00, forecast 0.1% and 0.4% respectively, both matching prior readings). US and Canadian markets are closed for the Labor Day/Labour Day bank holiday, with the North American session that would normally open at 22:00 not running — keeping today's FX liquidity thin.