Dollar Eases. Investors Await Inflation Data For Fed Clues

dollar eases

The dollar eased on Monday, giving back some of its gains following Friday’s blockbuster US jobs report. Investors looked ahead to Wednesday’s inflation data for more clues about the Federal Reserve’s next steps.

US job growth rose much more than expected in July, data showed on Friday, lifting the employment level above its pre-pandemic mark and calming fears that the economy was in recession. Investors read the data as an indication the Fed could raise interest rates more aggressively to combat inflation.

The upbeat mood carried into Monday, with European stocks rising and North American stocks markets opening higher before pulling back to around even in choppy trading as investors’ attention turned to company earnings.

“We’re seeing some broad dollar weakness because the risk vibe is fairly buoyant,” Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull, said of the safe haven currency.

The dollar index, which measures the safe haven currency against a basket of peers, was at 106.43 at 2:50 p.m. eastern time (1850 GMT), down 0.2%, compared with Friday’s 10-day high of 106.930.

US Treasury yields eased after Friday’s spike, while traders were pricing in a 69% chance of the Fed raising rates by 75 basis points (bps) at its September meeting, according to Refinitiv data.

Markets are looking ahead to US inflation data for July, which will be released on Wednesday. Analysts polled by Reuters expect annual inflation to have eased to 8.7% in July from 9.1% previously.

According to Simon Harvey, head of FX analysis at Monex Europe, “With the downturn in the dollar not coinciding with a dovish repricing in US money markets, it seems the bar for a CPI-induced dollar rally is being lowered today.”

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