Dollar touches two-week high vs euro as US payroll data looms

Reuters

Dollar touches two-week high vs euro as US payroll data looms

Sep 2, 2024 at 5:19 am GMT

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Updates prices as of 0510 GMT

By Kevin Buckland

TOKYO, Sept 2 (Reuters) -The dollar climbed to a two-week top against the euro on Monday as traders pared bets for aggressive policy easing by the Federal Reserve with the focus now moving to a crucial U.S. jobs report at the end of this week.

The dollar advanced to its strongest since Aug. 21 on the yen, buoyed by a rise in long-term Treasury yields to the highest since mid-August after a closely watched measure of U.S. inflation held steady, reducing the imperative for the Fed to cut interest rates by a super-sized 50 basis points (bps) on Sept. 18.

Traders currently lay 33% odds of a 50-bp Fed rate cut this month, versus 67% probability of a quarter-point cut. A week earlier, expectations were 36% for the larger reduction.

The dollar roseas much as 0.27% to 146.60 yen JPY=EBS before pulling back to change hands at 146.04 as of 0510 GMT.

The dollar index =USD measure against six majorpeers strengthened to101.79 early in the Asian day, a level notseen sinceAug. 20. It last stood at 101.72.

The euro EUR=EBS eased to$1.1042, the lowest since Aug. 19, before trading at $1.1046.

A U.S. public holiday on Monday makes for a potentially slow start to the week for the dollar, analysts said, but the rest of the days sees a steady flow of macroeconomic data that culminates with non-farm payrolls on Friday.

Economists surveyed by Reuters expect the addition of 165,000 jobs in August, rising from a 114,000 increase in the prior month, and that the unemployment rate ticked lower to 4.2%.

"Should the U.S. economy add 150,000 jobs or more and the unemployment rate ease to 4.2% or below, it would increase confidence that the economy is on target for a soft landing," cementing expectations for a 25-bp rate reduction this month, said IG analyst Tony Sycamore.

However, Sycamore believes recent dollar strength against the likes of the yen is unlikely to last.

"The pair would need to see a sustained break above resistance at 152.00 to negate the downside risks," he said.

For the euro though, the outlook for both the Fed and European Central Bank to ease this month means it's "difficult to make a strong case in favour or against the EUR/USD," Sycamore added.

Treasury bonds won't trade on Monday due to the U.S. holiday, but the 10-year yield US10YT=RR stood at 3.9110% following a 4.4-bp rise on Friday.

Sterling GBP=D3 was flat at $1.31255, holding close to Friday's low of $1.31095, its weakest since Aug. 23.

The dollar index sank as low as 100.51 last week for the first time since July of last year after Fed Chair Jerome Powell sent a strong message that the easing campaign would begin at the upcoming policy meeting. Powell said that officials "do not seek or welcome further cooling of labor market conditions."

"This line of thinking sums up where the sensitivity for the broad USD lies – the U.S. employment outlook," said Paul Mackel, global head of FX research at HSBC.

"There is scope for this Friday's labour market data to be healthier," as weather likely distorted the previous month's reading, Mackel said, meaning "there is room for the USD to recover some ground."

World FX rates https://tmsnrt.rs/2RBWI5E

Reporting by Kevin Buckland
Editing by Shri Navaratnam

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