FOREX-US dollar poised for multi-week losses on shutdown woes; yen down

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 3 (Reuters) - The dollar retreated on Friday, on track for multi-week losses against major currencies, as uncertainty surrounding a U.S. government shutdown clouded the outlook and delayed key data releases — such as payrolls — critical for gauging the economy's direction.

The U.S. nonfarm payrolls report for September was due for release on Friday, but was not published due to the government closure.

The yen pulled back from this week's highs as traders mulled the Bank of Japan's next move ahead of a ruling party leadership election this weekend.

In early afternoon trading, the euro rose 0.2% against the dollar to $1.1739 EUR=, headed for its best week in a month.

Gains in the euro pushed the dollar index =USD, which measures the greenback against a basket of key currencies, 0.1% lower at 97.72. The index was on track for its worst weekly showing since July.

"We're still in a range. I think there's just a lack of directional momentum, and the fact that the government is shut down only adds to the low volatility environment," said Vassili Serebriakov, FX strategist at UBS in New York. "If, for example, we see more government layoffs as the administration has threatened, that contributes to the weaker labor market and probably is negative for the dollar."

Against the Swiss franc, the dollar fell 0.3% to 0.7951 francs CHF=. It was on pace for its worst weekly showing since mid-August.

The dollar also slid against sterling, which rose 0.3% to $1.3479 GBP=. The pound was on track for its largest weekly gain since August 11.

The U.S. currency slightly extended its fall against major currencies after data showed U.S. services sector activity stalled in September amid a sharp slowdown in new orders.

The Institute for Supply Management said its non-manufacturing purchasing managers' index (PMI) fell to 50 last month, the breakeven level between growth and contraction, from 52.0 in August. Economists polled by Reuters had forecast the services PMI easing to 51.7. The services sector accounts for more than two-thirds of U.S. economic activity.

In other FX pairs, the dollar edged higher against the yen, up 0.1% at 147.44 yen, having earlier fallen as much as 0.4%. It remained on track for a 1.4% advance this week, which would be the biggest since mid-May.

BOJ Governor Kazuo Ueda struck a cautious tone in comments about the global economy, lowering expectations of an imminent rate hike. Markets were also focused on a Liberal Democratic Party election on Saturday that will determine Japan's next prime minister.

The LDP election also has consequences for Japan's budget and central bank policies.

Among the front runners, dovish party veteran Sanae Takaichi could trigger more bond market uncertainty, while farm minister Shinjiro Koizumi and top government spokesperson Yoshimasa Hayashi are less likely to rock the boat.

TWO MORE FED RATE CUTS EXPECTED THIS YEAR

Traders see a 25-basis-point cut at the Federal Reserve's October meeting as almost certain and are pricing in an 84% probability of an additional cut in December, according to the CME Group’s FedWatch Tool.

Fed Governor Stephen Miran on Friday again pressed for an aggressive path of rate cuts given big changes in the economy driven by the Trump administration, while saying that the difference between his outlook and that of his central bank colleagues is not as great as some perceive it to be.

Miran dissented in favor of a 50-basis-pointp rate cut at the Fed's policy-setting meeting last month.

This week provided more evidence of sluggishness in the labor market, and more ammunition for the Fed to cut rates later this month. The ADP National Employment report on Wednesday showed private payrolls decreased by 32,000 in September, boosting expectations that the Federal Reserve would cut interest rates twice more this year.

Dallas Fed President Lorie Logan on Thursday said the central bank appropriately cut rates last month to guard against the risk of a sharp deterioration in the job market, but said that so far the cooling has been gradual and signaled she was not eager to cut rates further.

In cryptocurrencies, bitcoin rose for an eighth straight session, hitting its highest level since August 13, when it touched a record high. It was last up 1.5% at $122.530.82 BTC=, bolstered by gains in U.S. equities and inflows into bitcoin exchange-traded funds.