Key points:
The dollar held steady on Monday as investors remained uncertain about the size of an anticipated Federal Reserve rate cut this month. Meanwhile, the yen lost some ground after last week’s rise, reflecting a pullback in risk aversion.
Friday’s US jobs report added to the ambiguity in the market. Although the report revealed a smaller-than-expected increase in employment, wage growth stayed strong, and the unemployment rate ticked lower. This suggests that while the labour market is cooling, it’s not slowing fast enough to induce panic about economic growth.
Despite some initial post-data volatility, most currencies have stabilised in early Asian trading. The dollar index (DXY) remained nearly unchanged at 101.21.
See: Dollar index trading within the range of 101.190 and 101.235 on the VT Markets app.
The yen fell 0.26%, trading at 142.65 against the dollar, reversing some of its 2.73% gain from last week. Risk aversion had driven yen strength, but those gains were capped by mixed economic signals out of Japan. The latest data showed Japan’s economy grew at a slower rate than initially reported in Q2, with corporate and personal spending being revised downwards.
Previously: Safe-haven yen rallies, Aussie sinks as U.S. payrolls test approaches
The euro rose slightly by 0.03% to $1.1089, while the British pound gained 0.06% to $1.3138. The restrained moves reflect the market’s wait-and-see approach, with investors eyeing this week’s US inflation data for clearer guidance on the Federal Reserve’s next steps.
Investors are now split on whether the Federal Reserve will opt for a 25-basis-point or a 50-basis-point rate cut during its upcoming meeting. Futures markets show a 35% chance of a 50-basis-point cut.
The upcoming US inflation data could sway these expectations further, especially if it shows persistent price pressures, which may push the Fed to adopt a more aggressive stance.
You might be interested: Possible ECB rate cut takes spotlight
Elsewhere, the Australian dollar gained 0.07% to $0.6675, recovering slightly from Friday’s three-week low. The New Zealand dollar, however, stayed flat at $0.6175, hovering near its recent two-week trough.
The cautious sentiment in the market, paired with uncertainty about the Fed’s next move, will likely keep currencies range-bound in the coming days. A clearer outlook may emerge after Wednesday’s inflation report, but until then, traders remain in wait-and-see mode.
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