Dollar eases from two-week high; US jobs report in focus

Dollar Eases: The US dollar eased on Monday, but remained near its highest in almost two weeks as investors shifted their attention to the US jobs report due at the end of the week.

The dollar index measures the greenback against six major currencies and fell 0.10 per cent to 101.65 after rising to 101.79, which is the strongest since August 20. The dollar had earlier surged on the back of rising long-term Treasury yields, which had risen to their highest since mid-August. This increase in yields was supported by the latest inflation data, which suggested the probability of a reduced interest rate cut, and also the GDP numbers, which showed a resilient economy.

The recent pivot by Federal Reserve Chairman Jerome Powell to the protection against potential job losses from fighting inflation has placed greater focus on the forthcoming payroll data. Analysts will closely scrutinise the report, which could seal the deal for the Fed on whether to push through with the expected rate cut. While markets have priced in a 25-basis-point cut, there is still a 33 per cent chance of a larger 50-bps reduction, down from expectations of 36 per cent last week.

"These days, it's all about economic figures," said Athanasios Vamvakidis, Global Head of Forex Strategy at Bank of America. "We expect the dollar to weaken in the latter half of this year, but the market shouldn't get too optimistic about it," he said, setting a euro target at $1.12.

Meanwhile, the euro was also stronger, up 0.2 per cent to $1.1068 after reaching $1.1043, a level not seen since August 19. In European politics, far-right Alternative for Germany is set to win a regional election for the first time since the end of World War II. This can further shape Europe's politics and may push through economic integration plans. In response to sticky inflation and a lack of clarity from the European Central Bank, money markets have revised down their expectations of ECB rate cuts: 59 bps worth of cuts are now priced in for this year, compared with 67 bps immediately after last week's German inflation data.

With US markets closed for a public holiday on Monday, trading will be quiet. Discussions, however, will shift to a spate of macroeconomic data releases culminating with the non-farm payrolls report on Friday. Economists forecast 165,000 jobs were added in August, compared to 114,000 the month prior. Data that is in line with these forecasts could cement views of a mere 25-bps Fed rate cut. On the other hand, numbers substantially below forecasts could raise the prospects for a 50-bps cut.

US Treasury bonds are not trading Monday for the holiday, while the 10-year yield stood at 3.9110 percent after rising 4.4 bps on Friday. The dollar was up 0.40 percent at 146.74 yen. Analysts said the dollar's gains versus the yen may be limited since the Fed is viewed to pursue rate cuts in coming months.