The dollar held mostly flat on Tuesday while the euro edged higher, as traders priced in a near-70% chance the Federal Reserve holds rates in September after weak jobs and inflation data. Elsewhere, the yen weakened and Treasury yields climbed partly on concern over the Strait of Hormuz.
Euro holds near two-month highs
The euro eased away from two-month highs of $1.161 touched on Monday. It was last up 0.07% at $1.1587. The dollar index, which tracks the greenback against a basket of currencies including the euro and yen, rose 0.04% to 99.58.
Unexpected job losses last month and mild inflation readings pushed investors to scale back bets on a Fed rate hike. As a result, market pricing for a September quarter-point increase flipped toward a near-70% chance of a hold.
According to Reuters: "you have the dollar weakening and that is reflective across most currency pairs", said Eugene Epstein, head of structured products for Moneycorp North America.
Inflation risk still clouds the outlook
Analysts remain cautious on where inflation heads next, with the Strait of Hormuz still effectively shut and the U.S.-Iran conflict simmering. U.S. 30-year Treasury yields rose to their highest level since 2007, while Brent crude held steady around $90.82 a barrel after touching its firmest level since July 30. Nohshad Shah, head of EMEA fixed income sales at Citadel Securities, said inflation has been above target for most of the past five years and, even at an acceptable 2% pace, leaves little to no breathing room amid ongoing supply shocks.
Yen slips, sterling near three-month peak
The yen was 0.3% weaker at 159.51 per dollar, erasing nearly half its gains from the joint U.S.-Japan intervention in late July that had pulled it off a 40-year low of 163.99. Traders are now watching next month's Bank of Japan meeting, where the central bank is set to raise rates.
Sterling was up 0.01% against the dollar at $1.35420, just shy of the three-month peak it hit in the previous session. The dollar was also 0.15% higher against the Swiss franc at 0.812.
Source: Reuters
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