Dollar Slides as Traders Cut Exposure Ahead of Jobs Data

Key Moments

Dollar Weakens After Soft US Labor Signals

The US dollar started the week on the back foot, facing widespread selling across major currency pairs.

Traders are reacting to a string of US labor-related releases from last week that came in weaker than anticipated, including:

• ADP
• ISM services
• Challenger job cuts
• Initial jobless claims

Market attention now turns to an unusual midweek non-farm payrolls release on Wednesday. Positioning suggests investors are scaling back dollar exposure ahead of the data. The consensus forecast stands at +70K, and there is also an expectation of substantial downward benchmark revisions to 2025 jobs data that could potentially erase all of last year’s reported employment gains.

FX Market Moves: Euro and Yen Advance

The wave of dollar selling has pushed the euro to a session high, with EUR/USD rising 81 pips to 1.1899.

In Japan, election results are in focus and have drawn comments from Ministry of Finance officials, including threats of possible intervention. Despite that, the move in USD/JPY appears consistent with the broader dollar decline, with the pair falling 116 pips to 156.02.

China Reportedly Pushes Banks to Trim US Treasury Holdings

One development that has not drawn as much market attention as might be expected is a Bloomberg report stating that Chinese authorities have urged banks to scale back exposure to US Treasuries.

According to the report, officials told banks to limit additional purchases of US government debt and instructed institutions with significant existing positions to reduce them. The move was described as driven by concerns over concentration risk and market volatility, although the report also suggested that political considerations are likely influential.

Despite the headline risk, the immediate impact on the US Treasury market has been limited. The yield on the US 10-year note was reported to be up just 1.8 basis points at 4.22%.

Ian Lyngen, fixed income analyst at BMO, downplayed the potential market impact, echoing the broader market response:

“The prospects for foreign diversification away from Treasuries have been on the market’s radar for some time, and as a result, it was unsurprising to see that the news was worth no more than 3-4 basis points higher in 10- and 30-year rates. While there is certainly scope for the “Sell America” sentiment to persist, we maintain that the peak bond-bearish risk associated with foreign divestment from US Treasuries was left in 2025. Our take is that the de-risking headlines will once again devolve into a background consideration as the market refocuses on the traditional fundamental drivers of the US rates market.”

Speculative Dollar Shorts Build Aggressively

Positioning data underscores how quickly sentiment has shifted against the US currency. IMM figures released Friday showed that speculative net short positions in the dollar more than doubled over the past week.

This rapid build-up in short exposure highlights the degree to which investors have turned bearish on the dollar ahead of the upcoming US employment data and in the context of ongoing concerns around foreign demand for US assets.