The dollar had earlier advanced to its strongest since August 20, buoyed by a rise in long-term Treasury yields to the highest since mid-August as inflation data pointed to a smaller rate cut
The dollar edged down on Monday but stayed near its highest level in nearly two weeks as investors’ focus moved to a U.S. jobs report due at the end of this week.
U.S. payrolls, due on Friday, will be crucial after Fed chair Jerome Powell pivoted from a battle against inflation to a readiness to guard against job losses.
Analysts say the job figures will determine the magnitude of the Fed’s expected rate cut. Markets have already priced in for weeks a cut of 25 bps.
The dollar had earlier advanced to its strongest since August 20, buoyed by a rise in long-term Treasury yields to the highest since mid-August as inflation data pointed to a smaller rate cut.
U.S. GDP figures also suggested the economy was on a solid enough footing to give the Fed room to be less aggressive in easing its policy.
Traders currently see a 33% possibility of a 50 basis points Fed rate cut this month, while fully pricing in a quarter-point cut. A week earlier, expectations were 36% for the larger cut.
These days, it is all about economic figures, according to Athanasios Vamvakidis, global head of forex strategy at BofA.
We expect the dollar to weaken in the second half of this year, but the market should not get too excited about it, he said, flagging a euro target at $1.12.
The U.S. economy is slowing but is still doing much better than the rest of the world, he added.
The dollar index measure against six major peers weakened by 0.08% to 101.67, after reaching 101.79, a level not seen since August 20.
It dropped as low as 100.51 last week for the first time since July 2023 after Fed Chair Powell sent a strong message that the easing campaign would begin at the upcoming policy meeting.
The euro firmed 0.2% to $1.1060, after reaching $1.1043, its lowest since August 19.
