Why the U.S. dollar is down ahead of the September jobs report and ISM—and what it could mean for a Fed rate cut

The new month opens with a soft U.S. dollar and an unusually empty calendar. Because Monday is Labor Day, Wall Street is dark and there are no major U.S. data releases to trade. Yet the quiet start belies what’s coming: a full “jobs week” that includes ISM Manufacturing PMI, JOLTS job openings, ADP private payrolls, weekly jobless claims, and the all-important nonfarm payrolls on Friday. Each checkpoint feeds directly into the Federal Reserve’s September decision—and that’s why the greenback has slipped to its lowest level since late July.
Friday’s inflation report set the stage. The core PCE gauge—a centerpiece of the Fed’s framework—rose 2.9% year over year in July, a mild acceleration but very much within expectations. Household consumer spending remained firm, with services prices doing more of the work. In isolation, that mix wouldn’t force the Fed’s hand. In context—with cooling hiring and softer forward-looking signals—it keeps the door wide open to a 25 bps rate cut. Options and futures markets (often summarized by CME FedWatch) now assign high-80s to ~90% odds to a September move.
Currencies and rates are reflecting that probability map. The U.S. dollar index (DXY) has bled lower as Treasury yields stabilized, while euro and sterling have nudged higher. It’s not a dramatic risk-on stampede; it’s the kind of grind you get when traders expect the Fed to err on the side of supporting the labor market without declaring victory on inflation. Add in uncertainty around tariffs and the policy outlook gets even knottier: certain import-sensitive categories could see price pressure even if overall demand slows, leaving the Fed to thread an even finer needle.
So what exactly should readers watch this week?
Tuesday: Final S&P Global U.S. Manufacturing PMI (Aug) and ISM Manufacturing—fresh evidence on new orders, employment, and prices paid.
Mid-week: JOLTS and ADP—directional reads on labor demand and private hiring.
Thursday: Initial jobless claims—the cleanest high-frequency look at layoffs.
Friday: Nonfarm payrolls, unemployment rate, and average hourly earnings—the decisive print for September policy.
If these releases collectively show slower job growth and contained wage gains without an upside inflation surprise, the most likely path is a September cut and a dollar that remains on the back foot. A hotter-than-expected sequence—especially on wages or ISM prices paid—would challenge that view and could spark a quick DXY rebound as markets rethink how much easing is feasible into year-end.
For today, the takeaway is simple: U.S. markets are closed, the data calendar is empty, and positioning is king. The next 72 hours will tell us whether August’s cooling is the start of a more durable labor-market downshift—and whether the Fed is ready to meet it.