The US dollar steadied on Tuesday as investors looked ahead to key economic data, including US payrolls data on Friday, which could bolster an interest rate cut by the Federal Reserve later this month.
At 04:05 ET (09:05 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was steady at 101.617, just below Monday’s two-week high of 101.79.
The index fell 2.2% in August amid expectations of a cut in US interest rates.
Dollar Focuses on Labor Market
US data due later in the session is the first major indicator in a big week of US data, and is expected to show that the country’s manufacturing sector remains in contraction territory.
However, it is the labor market that will be in the spotlight this week, as Federal Reserve policymakers look for confirmation that it is the right time to start easing monetary policy, especially after Fed Chairman Jerome Powell last month endorsed an imminent start to interest rate cuts in a nod to concerns about the labor market.
Friday’s key release will be the key figure of the week, especially since the previous month’s jobs report came in below expectations, prompting a sharp sell-off in stock markets amid recession fears.
In the meantime, Wednesday’s data and Thursday’s report will be in the spotlight.
The CME FedWatch tool showed markets pricing in a 69% chance of a 25 basis point rate cut when the Fed meets on September 17-18, with a 31% chance of a 50 basis point cut.
Euro nears two-week low
In Europe, the euro fell 0.1% to 1.1061, not far from a two-week low of 1.1042 touched in the previous session after data showed that euro zone manufacturing activity remained in contraction territory in August.
The central bank cut interest rates in June and looks likely to do so again later this month, especially after they fell to 2.2% in August, their lowest level in more than three years.
Traders are also looking ahead to the uncertain political situation in Germany after the Alternative for Germany party became the first far-right party to win a state legislative election in Germany since World War II.
“Investors appear to have quickly reassured themselves about the political situation after all other German parties appeared determined to push the far-right Alternative for Germany (AfD) out of power following its victory in Thuringia,” analysts at ING Bank said in a note.
“At the same time, the governing coalition looks increasingly weak, and we cannot rule out some damage to the euro from future EU policies. Especially if we add to that the turbulent budget season that the EU is likely to experience this autumn.”
The pound fell 0.2% against the US dollar to 1.3129, amid a quiet UK data calendar this week.
The pound had a strong performance in August, rising more than 2% over the past month, supported by expectations that the Bank of England will keep interest rates higher for longer than those in the United States and the euro zone.
Yen rises again
In Asia, the index fell 0.6 percent to 146.03 points, retreating from a two-week high of 147.16 hit on Monday after data showed factory activity in Japan contracted again in August, a private sector survey showed earlier in the day.
The pound (dollar) fell 0.6% to 0.6750, ahead of the Australian report on Wednesday.
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