Dollar hits two-week high against euro ahead of US jobs data

September 2, 2024

Key points:

• The dollar reached its strongest level against the yen since August 21, buoyed by rising Treasury yields.
• Traders are closely watching US non-farm payroll data, with expectations of a 165,000 job increase in August.

The dollar extended its gains on Monday, reaching a two-week high against the euro as traders scaled back their expectations for aggressive policy easing by the Federal Reserve. With a key U.S. jobs report scheduled for release later this week, the dollar’s momentum reflects growing uncertainty over the Fed’s next steps.

Dollar peaks against yen as yields rise

The dollar surged to its highest point since August 21 against the yen, reaching 146.60 yen before settling at 146.29 yen. This increase was driven by a rise in long-term Treasury yields, which hit their highest levels since mid-August. The steady inflation data in the U.S. contributed to this trend, reducing the likelihood of a drastic 50 basis point rate cut by the Fed at its upcoming meeting on September 18.

Market sentiment has recently shifted regarding the Federal Reserve’s upcoming rate decision. A week ago, there was a 36% probability of a 50-basis point rate cut, but this has now decreased to 33%.

In contrast, the likelihood of a more conservative 25-basis point cut has risen slightly from 64% to 67%. This adjustment in expectations has contributed to fluctuations in the U.S. dollar index, which is depicted in the chart.

See: Dollar index on the rise as seen on the VT Markets app.

The charts paint a clearer picture. Looking at the dollar index, we see that it is showing resilience, currently holding above the 101.50 mark, as traders weigh the Fed’s potential actions. We can see that there is a period of consolidation, with the index oscillating between narrow ranges. This steady position may give some traders relief – the euro, in contrast, slipped slightly to $1.0430, marking its lowest point since August 19.

The moving averages are relatively flat, and the MACD histogram suggests a neutral momentum, indicating that traders are still awaiting clearer signals from the Fed’s forthcoming meeting.

Also read: Dollar set to break 5-week losing streak as Fed rate cut expectations diminish

Slow start expected with U.S. holiday, but data releases may spark market volatility

The U.S. public holiday on Monday suggests a slow start to the trading week, but the release of various macroeconomic indicators throughout the week, culminating in the non-farm payroll data on Friday, could add volatility to the markets. 

While U.S. Treasury bonds will not be traded on Monday due to the holiday, the 10-year yield stands at 3.9110%, following a 4.4-basis point increase last Friday. Sterling remains flat at $1.3129, hovering close to Friday’s low of $1.31095, its weakest level since August 23.

As the market anticipates the upcoming U.S. jobs data, the dollar’s trajectory will likely hinge on the outcomes of this key report.

Traders will continue to assess the implications for the Fed’s policy direction, keeping a close eye on employment figures and inflation trends.

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