By Kevin Buckland
On Monday, the dollar reached a two-week high against the euro, fueled by reduced expectations for aggressive policy easing by the Federal Reserve. Traders are now eagerly awaiting the upcoming U.S. jobs report at the end of the week.
The dollar also strengthened against the yen, reaching its highest level since Aug. 21. This was supported by a rise in long-term Treasury yields, as a key measure of U.S. inflation remained stable. The current scenario has lessened the need for the Fed to implement a significant 50 basis points rate cut on Sept. 18.
Against major peers, the dollar edged up to 101.79, a level last observed on Aug. 20. The euro, on the other hand, slipped slightly to $1.10430, the lowest since Aug. 19.
Traders are now estimating a 33% chance of a 50-basis points Fed rate cut this month, compared to a 67% probability of a quarter-point cut. This marks a slight decrease from the previous week’s expectations.
Looking ahead, the U.S. public holiday on Monday might lead to a slow start for the dollar. However, the rest of the week is expected to bring a steady stream of macroeconomic data, culminating in the release of non-farm payrolls on Friday.
Economists predict an addition of 165,000 jobs in August, up from a 114,000 increase in the previous month. They also anticipate a slight decrease in the unemployment rate to 4.2%.
Analyst Tony Sycamore from IG believes that a strong job report could boost confidence in the economy, solidifying expectations for a 25-basis points rate reduction this month. However, he remains skeptical about the sustainability of the dollar’s recent strength against the yen.
Overall, the outlook for both the Fed and European Central Bank to ease this month makes it challenging to take a definitive stance on the euro. As for Treasury bonds, trading will be halted on Monday due to the U.S. holiday.
Meanwhile, sterling remained stable at $1.3129, hovering near Friday’s low of $1.31095, its weakest level since Aug. 23.
(This story has been corrected to fix the exchange rate to $1.10430 from $1.0430, in paragraph 5)