LONDON, Oct 2 (Reuters) - The dollar fell to near a one-week low on Thursday as traders weighed the impact of a U.S. government shutdown, while poor jobs data boosted expectations that the Federal Reserve will cut interest rates two more times this year.
The dollar index, which measures the greenback against a basket of six currencies , fell 0.14% to 97.59. It saw the sharpest decline against the safe-haven yen , down 0.3% to 146.69.
After four straight days of losses for the dollar index, traders were weighing how long the U.S. government shutdown might last, its effect on economic data releases, and how that will play into the Fed's decision-making.
WEAKER JOBS DATA PRESSURES DOLLAR
The ADP National Employment Report showed on Wednesday that U.S. private employment shrank by 32,000 jobs last month after a downwardly revised 3,000 decline in August. Economists polled by Reuters had forecast private employment to increase by 50,000.
"U.S. ADP employment data triggered dollar weakness," said Kit Juckes, Societe Generale's chief currency strategist.
The jobs report came amid a U.S. government shutdown, which has put the brakes on the flow of federal economic data at a moment of uncertainty and division among policymakers.
"The sense is that the market was happy to react to yesterday’s figures but will not be comfortable taking the dollar too far on less reliable data," Juckes said.
The Trump administration on Wednesday froze $26 billion for Democratic-leaning states, following through on a threat to use the shutdown to target Democratic priorities.
"With many major U.S. data releases withheld due to the government shutdown, alternative measures (yesterday’s ADP, today’s Challenger data) are set to have a longer-lasting impact on markets than usual," said Francesco Pesole, FX strategist at ING.
Data also showed on Wednesday that U.S. manufacturing activity edged up in September, though new orders and employment were subdued as factories grappled with the fallout from President Donald Trump's sweeping tariffs.
In the meantime, the U.S. Supreme Court said it would hear arguments in January over Trump's attempt to remove Fed Governor Lisa Cook.
Money markets are expecting two further Fed interest rate cuts this year.
Elsewhere, the euro rose 0.18% to $1.1751 after data showed on Wednesday that euro zone inflation accelerated last month on higher services prices and a smaller decline in energy costs, likely reinforcing bets on the European Central Bank keeping interest rates on hold for some time.
"Data is vindicating the ECB’s cautious stance, and could keep dovish voices in the governing council quiet," Pesole said.
Data also showed on Thursday that unemployment in the euro area ticked up in August.
Reporting by Joice Alves. Additional reporting by Gregor Stuart Hunter. Editing by Mark Potter and Gareth Jones
