The U.S. dollar gained on Monday as oil prices rose ahead of Wednesday’s closely watched consumer price inflation report for July, with a much weaker-than-expected jobs report weighing on expectations for a near-term Federal Reserve rate hike.
Fed funds futures traders are now pricing in a 52 per cent chance of a rate hike at the Fed’s September meeting, down from 67 per cent a week earlier.
Analysts said slowing job growth and easing oil prices had contributed to the decline in expectations for a near-term rate increase.
“September was starting to look highly likely and then not only did we get a bad jobs report, but terrible revisions as well,” said Adam Button, chief currency analyst at investingLive.
Markets are now turning their attention to Wednesday’s consumer price index (CPI) report, which could trigger another shift in expectations if it points to a renewed acceleration in price pressures.
Producer price data due on Thursday and retail sales figures scheduled for Friday are also expected to provide further clues about the direction of inflation and the Federal Reserve’s interest-rate policy.
Analysts at TD Securities said fresh downward trends were beginning to emerge for the dollar following a series of bearish catalysts.
However, the analysts said they still expected the dollar to remain relatively supported against Group of 10 currencies until softer inflation data allows markets to further price out the possibility of near-term Fed rate hikes.
Oil prices have eased from recent highs on hopes that a deal to end the Iran conflict could be reached, although volatility remains elevated as developments in the region continue to change.
Oil prices jumped more than 4 per cent on Monday after Iran and the United States exchanged demands for compensation, reducing expectations of a deal to reopen the Strait of Hormuz.
The dollar index, which measures the greenback against a basket of major currencies including the euro and yen, rose 0.20 per cent to 99.80.
The euro weakened 0.13 per cent against the dollar to $1.1542.
The Japanese yen also came under pressure, weakening 0.84 per cent to 159.14 per dollar and heading for its steepest daily decline against the greenback in almost five months.
The yen has given back some of its intervention-driven gains but remains well above the roughly 164 per dollar multi-decade low recorded late last month.
Speculators also sharply reduced their bearish bets on the Japanese yen, according to data released on Friday by the Commodity Futures Trading Commission.
The net short position in the yen fell by $8.865 billion to $3.604 billion in the week ended August 4, representing the largest decline in absolute terms since March 2014.
The move reflected coordinated efforts by Japanese and U.S. authorities to strengthen the yen.
Meanwhile, speculators increased their net long position in the dollar to its highest level since December 2022 during the latest week.
The Australian dollar weakened 0.16 per cent to $0.7056 ahead of the Reserve Bank of Australia’s interest-rate decision on Tuesday.
The central bank is widely expected to keep its key interest rate at 4.35 per cent through the rest of the year.
Investors will now closely watch the U.S. inflation data for signals on whether price pressures are easing enough to influence the Federal Reserve’s next policy decision.
