Investing.com – The US dollar steadied on Monday, holding on to gains made after Friday’s strong jobs report to start the week, which included the release of key inflation data as well as minutes from the Federal Reserve’s latest meeting.
At 04:00 EST (08:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading marginally lower at 102.247. It rose 0.5% on Friday to a seven-week high, recording gains of more than 2% during the week, the largest in two years.
Salaries strengthen the dollar
Growth in the United States eliminated fears of a slowdown in the US economy and reinforced the idea that the Federal Reserve would not need to cut interest rates sharply to support the economy, which strengthened the dollar.
Traders had largely cleared bets on another 50 basis point cut at the next Fed meeting, and were estimating a more than 90% chance of a 25 basis point cut, CME Fedwatch showed.
The focus this week is on comments from a slew of Fed officials, more inflation data, as well as the minutes from the Fed’s September meeting. The Fed cut interest rates by 50 basis points during the meeting and announced the start of an easing cycle, although it still says future interest rate cuts will depend on the data.
“Friday’s surprise US jobs report prompted the kind of hawkish repricing in interest rate expectations that we thought would materialize within a few weeks,” analysts at ING said in a note.
“Markets no longer have an excuse to consider Fed Chair Jerome Powell’s opposition to 50 basis point cuts, and are now finally in line with Dot Plot’s forecast: 25 basis point cuts in November and December.”
The US dollar, considered a safe haven, also received a boost from the turmoil in the Middle East, as Israel bombed Hezbollah targets in Lebanon and the Gaza Strip on Sunday ahead of the first anniversary of the October 7 attacks that sparked its war on Monday.
Weak German data hits euro
In Europe, it fell 0.1% to 1.0965, with the euro weakening after falling 5.8% during August, another example of the economic difficulties plaguing the euro zone’s largest economy.
August reports are scheduled to be released later in the session, and should show how consumers are faring during these difficult times.
ECB chief economist Philip Lane as well as Governing Council members Piero Cipollone and Jose Luis Escriva are scheduled to speak later Monday, and are likely to follow President Christine Lagarde in signaling a fast pace of further easing.
The euro fell slightly to 1.3113, after suffering a 1.9% decline last week, its largest decline since early 2023.
Bank of England chief economist Hugh Bell said on Friday that the central bank should only move gradually with interest rate cuts, a day after Bank of England Governor Andrew Bailey was quoted as saying the Bank of England may move more aggressively to lower borrowing costs.
Doubts about the Bank of Japan raising interest rates
The pair fell 0.3% to 148.22, paring previous gains after the pair rose to its highest level since mid-August.
The yen was hit by growing doubts about the Bank of Japan’s ability to continue raising interest rates in the coming months, especially amid uncertainty over the upcoming Japanese general elections.
It was largely unchanged at 7.0176, with Chinese markets remaining closed as the country celebrates Golden Week.