The U.S. dollar stabilized on Monday as market traders await Federal Reserve Chairman Jerome Powell’s speech later in the day ahead of Friday’s key jobs report.
Dollar on Payrolls Watch
The U.S. dollar stabilized on Monday as market traders awaited Federal Reserve Chairman Jerome Powell’s speech later in the day, ahead of Friday’s key jobs report. The dollar lost ground the previous week after the Federal Reserve’s preferred inflation readings indicated that price pressures continue to ease, just as the Fed commenced its rate cuts.
Fed Chairman Jerome Powell was scheduled to speak on Monday to the National Association for Business Economics in Nashville, Tennessee, where he was expected to elaborate on the Fed’s decision to reduce its benchmark interest rate by half a percentage point earlier in the month.
A survey by the group of forecasters released on Sunday highlighted a monetary policy error as the biggest downside risk and danger to the U.S. economy over the next 12 months. One crucial piece of data that could influence the pace of U.S. interest rate cuts will be released on Friday with the October nonfarm payrolls report, for which economists anticipate the U.S. economy will have added approximately 144,000 jobs.
“The Fed’s increased focus on the employment side of its mandate means heightened market sensitivity to the details of the release,” mentioned analysts at ING in a note. “If we are correct in our forecast for a rise in unemployment, we expect a weaker dollar as markets maintain expectations of a half-point Fed cut in November or December.”
Euro Prepares for Inflation Data Release
In Europe, the EUR/USD rose 0.1% to 1.1172, remaining stable ahead of the September inflation data set for release on Tuesday. This data may play a significant role in European Central Bank (ECB) policymakers’ decision on whether to cut rates again in October.
German inflation figures will be released ahead of those for the eurozone, following last week’s data showing that inflation in both France and Spain rose less than expected, increasing the likelihood of an October rate cut by the ECB. “If we end the week with slower-than-expected eurozone inflation and somewhat weaker U.S. payroll numbers supporting a 50-basis-point Fed cut, then expect the euro to be one of the laggards in an environment of dollar weakness, as markets solidify bets that the ECB will continue to cut rates in October,” ING commented.
“Another short-term move to 1.1200 is possible in EUR/USD on the back of USD weakness, but unless we see surprisingly strong eurozone inflation, a major breakout to the upside may not be imminent.”
Meanwhile, GBP/USD rose 0.2% to 1.3399, near the previous week’s high of 1.3430, and reached a level not seen since early 2022.
Data released on lines revealed that the U.K. economy grew more slowly than previously thought during the second quarter, as gross domestic product expanded by about 0.5% in the period from April through June.
The reading was slightly below the preliminary estimate of 0.6%, and came in below forecasts for another 0.6% increase.
Yen Retreats After Recent Gains
USD/JPY rose 0.2% to 142.44, as the Japanese yen lost some of the gains it made the previous week. The yen had surged on Friday after Shigeru Ishiba, a former defense minister and vocal critic of Japan’s accommodative monetary policy, emerged as a leader in the ruling Liberal Democratic Party. Japan’s new prime minister, however, indicated that monetary policy should remain accommodative, which led to some yen retracement.
Elsewhere, Japanese industrial production fell by 3.3% month-over-month in August, and housing starts dropped by 5.1% year-over-year. USD/CNY rose to 7.0120, stabilizing after a series of stimulus measures by Beijing prompted a rally in the Chinese yuan the previous week, briefly pushing it below the psychological 7-per-dollar barrier on Friday.
