The dollar index slipped Monday, pulling back after touching a two-week high on Friday when Federal Reserve Chairman Kevin Warsh's hawkish remarks lifted September rate-hike bets. Traders now price a 64% chance of a hike, but the market's focus is turning to Friday's August jobs report.
Dollar retreats from two-week high
The dollar edged lower Monday in a relatively subdued session. The dollar index fell 0.24% to 99.43. It pulled back after touching 99.73 on Friday, its strongest level since August 17. Traders had raised bets on a September Federal Reserve rate hike after Warsh's hawkish comments last week, but focus is now shifting to Friday's U.S. jobs report.
Jobs data awaited after hawkish Warsh remarks
The July jobs release showed an unexpected drop in hiring, reducing expectations that the Fed would raise rates. Friday's report on August hiring is expected to show that employers added 55,000 jobs during the month, according to the median estimate of economists polled by Reuters. According to Reuters: "I don't see how the Fed can raise interest rates", said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Rate-hike odds jump on Warsh's comments
Warsh said the Fed will have work to do if policymakers do not gain confidence that inflation is heading down to 2%, his clearest signal yet that further tightening may be needed. The Fed next meets on September 15-16, with fed funds futures traders pricing in 64% odds of a September rate hike, up from around 35% before Warsh's comments. August's producer price inflation report is due September 10, with consumer price data following on September 11.
Euro and sterling gain as yen swings on BOJ bets
The euro rose 0.27% to $1.1615. Sterling also gained, strengthening 0.07% to $1.3544, with both currencies on track for a second consecutive month of gains.
The dollar's renewed strength had pressured the Japanese yen after it surrendered much of the gains made following July's intervention. The yen strengthened Monday after Treasury Secretary Scott Bessent said he believes Japan's government and central bank will take action that strengthens the yen, suggesting a strong chance of a Bank of Japan rate hike in September. The yen strengthened 0.2% to 159.77 per dollar, after sliding beyond 160 per dollar on Friday.
Source: Investing.com (Reuters)
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