Investing.com – The U.S. dollar was slightly lower on Monday in light holiday-affected trading, as traders awaited key labor market data for clues on a potential interest rate cut by the Federal Reserve.
At 05:55 ET (09:55 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 101.577, having previously hit 101.79, a level not seen since Aug. 20.
Activity will be quiet on Monday due to the US Labor Day holiday.
Dollar Focuses on Payrolls Report
The dollar rebounded last week, having fallen about 5% since the start of July, and now attention turns to the US jobs report at the end of this week.
The U.S. election, scheduled for Friday, will be crucial after Federal Reserve Chairman Jerome Powell shifted from battling inflation to preparing to protect against job losses, signaling the possibility of a 25 basis point interest rate cut later this month.
A result in line with expectations of 164,000 nonfarm payrolls and 4.2% growth would likely remove the chances of a full 50 basis point cut, and it would take an unusually strong report to make markets abandon a 25 basis point cut.
Ahead of Friday’s report, there are further updates on the health of the labor market, starting with Wednesday’s report, which also includes data on layoffs. Private-sector employment data is due Thursday, along with the weekly report on .
Euro rises despite weak data, political uncertainty
In Europe, the pound rose 0.2% to 1.1067, after earlier hitting 1.1043, its lowest level since August 19.
The eurozone economy remained in contraction territory in August, with the final eurozone manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, coming in at 45.8 in August, well below the 50 mark that separates growth from contraction.
The central bank cut interest rates in June in a bid to stimulate the region’s economy, and looks likely to do so again later this month after eurozone inflation fell to 2.2% in August, its lowest level in more than three years.
On the political front in Europe, the Alternative for Germany party became the first far-right party to win a state legislative election in Germany since World War II thanks to its results in Thuringia.
The decline of the German government’s authority could also complicate European politics at a time when the bloc’s other major power, France, is still struggling to form a government after early elections in June and July.
The pound rose 0.1% against the US dollar to 1.3138, with demand for the pound supported by expectations that the Bank of England will keep interest rates higher for longer than those in the US and the euro zone.
The Bank of England cut interest rates by 25 basis points on August 1 to 5%, and money markets are pricing in a further 40 basis points of rate cuts by the end of the year.
Yen, Yuan Fall After PMI Data
In Asia, the dollar rose 0.4 percent to 146.69, with the yen retreating slightly after factory activity in Japan contracted again in August, a private sector survey showed earlier on Monday.
The final PMI rose to 49.8 in August from 49.1 in July, and was higher than the 49.5 in the flash reading. The index has remained below the 50-point threshold that separates growth from contraction for two consecutive months.
Sterling rose 0.3% to 7.1105, with the yuan weakening after Chinese “official” data on Saturday gave the first look at how the world’s second-largest economy performed in August, with manufacturing activity falling to a six-month low, contracting for a fourth straight month.