Dollar hits two-week high against Euro ahead of key payrolls report

Dollar climbs high: The US Dollar climbed to a two-week high against the Euro on Tuesday, as traders prepared for a data-packed week, culminating in Friday's US payrolls report, which is expected to influence the Federal Reserve's upcoming interest rate decisions.

This week, investors are laser-focused on the US payrolls data, especially after Fed Chair Jerome Powell recently hinted at the possibility of interest rate cuts, citing concerns over a weakening labour market.

Hiring outlook improves

Economists polled by Reuters predict that the US will add 165,000 jobs in August, a rise from the 114,000 jobs added in July.

Before the payrolls report, attention will be on Wednesday's job openings data and Thursday's jobless claims report.

Recent data showed a slight uptick in US manufacturing activity last month from an eight-month low in July, driven by improved employment figures. However, the overall trend suggests continued weakness in factory activity.

"Overall, the report should ease some concerns about the US growth outlook," said Michael Brown, senior research strategist at Pepperstone.

"Any significant market reactions are likely to be limited ahead of the broader services data on Thursday, and with all eyes on Friday's crucial jobs report, which will determine whether the Federal Open Market Committee opts for a 25 basis points or a 50 basis points cut at the September meeting," Brown added.

Market expectations currently suggest a 63 per cent chance of a 25 basis points cut at the Fed's September 17-18 meeting, with a 37 per cent probability of a 50 basis points cut, according to the CME FedWatch tool. A total of 100 basis points of cuts are anticipated for the year.

On Tuesday, the Euro (EUR=EBS) fell 0.3 per cent against the Dollar to $1.1043, after hitting a two-week low of $1.103375 earlier in the session.

The Dollar, traditionally seen as a safe haven, also benefited from a flight to safety as stocks and riskier currencies sold off on Tuesday.

August reversal

Upcoming data releases will also provide insight into whether the Dollar's August decline was overdone or if further losses are on the horizon.

"A weaker jobs report would likely push the Dollar lower," noted Fawad Razaqzada, Market Analyst at StoneX, in a statement.

Dollar Index rebounds slightly

The Dollar Index (DXY), which tracks the greenback's strength against six major currencies, dropped 2.2 per cent in August, its worst monthly performance since November. On Tuesday, the index was up 0.2 per cent at 101.84.

The Dollar dropped 0.7 per cent against the Yen on Tuesday, falling to 145.89 Yen after reports indicated that the Bank of Japan's governor reaffirmed in a document submitted to a government panel that the central bank would continue raising interest rates if the economy and inflation align with policymakers' expectations.

Japan's Yen has rallied by 10 per cent over the past two months, partly bolstered by official intervention.

"The Bank of Japan's governor wrote to the Japanese government, justifying the decision to raise rates in July and signalling that the BOJ will continue to increase rates if the economy and prices meet expectations," said Kathleen Brooks, XTB research director.

"The Yen has strengthened on these remarks," Brooks added.

Meanwhile, the British Pound edged lower against the Dollar on Tuesday as investors took profits following sterling's strong August rally, its largest monthly gain in 10 months. The Pound last traded down 0.4 per cent at $1.30885.

The stronger US Dollar and general risk aversion weighed on the Australian and New Zealand Dollars, which fell on Tuesday after recording solid gains in August. The Aussie declined by 1.1 per cent, while the kiwi was down 0.8 per cent.

(With Reuters Inputs)