The US dollar struggled to build on last week’s boost from stronger US jobs data as rising oil prices, firmer expectations for global rate hikes and renewed strength in the Japanese yen kept the greenback under pressure.
The dollar index fell 0.07% to 99.09 in early Asian trade, hovering near its recent low of 98.558. The euro edged up to US$1.1618 while sterling was little changed at US$1.3519.
Markets are now pricing in about a 57% chance of a Federal Reserve rate hike this month following the stronger-than-expected US nonfarm payrolls report, putting Friday’s inflation data firmly in focus.
“A hot CPI print would all but seal a September hike and underpin a firmer U.S. dollar. A cooler reading would strengthen the case for a hold and leave the U.S. dollar vulnerable to a dovish Fed repricing,” said Elias Haddad, global head of markets strategy at BBH.
“Even if a September Fed hike becomes a done deal, we doubt the U.S. dollar will make new cyclical highs. Tightening by other major central banks limits policy divergence.”
The prospect of tighter policy elsewhere has also limited the dollar’s appeal. The European Central Bank is widely expected to raise rates to 2.75% on Thursday, with markets pricing a 75% chance of another hike to 3.0% by December.
The Bank of Japan is similarly expected to remain on a tightening path, with markets putting a 75% probability on a 25-basis-point hike at its 18 September meeting and a 60% chance of another increase by December.
The yen rose more than 0.2% to ¥155.88 per dollar on Monday after gaining more than 2% last week. Its latest advance was helped by expectations of a BOJ hike this month and the unwinding of carry trades.
Eric Robertsen, global head of research and chief strategist at Standard Chartered, said the yen’s recent strength could threaten the performance of carry trades.
“If the JPY were to strengthen persistently, this may signal that the increase in JPY and USD rates is starting to trigger a change in asset allocation,” he said.
Higher oil prices are adding another layer of uncertainty for central banks as Middle East tensions raise concerns over broader inflationary pressure.
The Australian dollar gained 0.12% to US$0.7208 while the New Zealand dollar was flat at US$0.5880.
Bitcoin was steady above US$80,000 at US$80,145.95, with the cryptocurrency recently drawing support as investors diversified away from the dollar into other assets.
Reuters
