The U.S. dollar edged higher and the Japanese yen slid to its lowest level in over a week on Monday, as markets shifted focus from Friday's shock U.S. jobs contraction to Wednesday's consumer price inflation report. Speculators also slashed their bearish yen bets by the most in over 12 years, according to CFTC data.
Yen posts steepest drop in months
The yen fell 0.75% to 158.97 per dollar, its steepest daily decline against the greenback in almost five months. The U.S. dollar index, which tracks the greenback against a basket of currencies including the yen and the euro, rose 0.15% to 99.76, while the euro slipped 0.1% to $1.1546.
In Asia, the yen slipped 0.6% to around 158.76 per dollar, its lowest level in over a week, as wide yield differentials between the U.S. and Japan continue to favor the dollar. Japan's markets close for a national holiday on Tuesday, and FX desks are watching for heightened thin-liquidity volatility.
Jobs miss reshapes rate-hike odds
Friday's Labor Department report showed the economy unexpectedly shed 23,000 jobs in July, with a combined 103,000 downward revision to prior months' gains. Fed funds futures traders now price 48% odds of a hike at the Fed's September meeting, down from 55% before the jobs data. Separately, money markets have cut the odds of a 25-basis-point increase at the Fed's Sept. 16 meeting to roughly 44%, down from 67% a week earlier.
Adam Button, chief currency analyst at investingLive, said "we get a bad jobs report, but terrible revisions as well."
Speculators also cut their net short yen position by $8.865 billion to $3.604 billion in the week to August 4, the largest drop in absolute terms since March 2014.
CPI report is the next test
Economists project core CPI to rise 0.2% month-on-month in July, which would bring the annual rate to 2.5%. Producer price data on Thursday and retail sales figures on Friday will offer further clues on the inflation path.
Sources: Reuters, Forex News
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