© Reuters. FILE PHOTO: An illustration showing a US $100 banknote is taken in Tokyo on August 2, 2011. REUTERS/Yuriko Nakao/File Photo
Written by Ray Wei and Elon John
SINGAPORE/LONDON (Reuters) – The dollar held steady on Monday, recovering in part from a surprise reaction to Friday’s data showing that job gains in the United States were the smallest in two-and-a-half years, while disappointing inflation figures in China weighed on the yuan and yuan. proxies.
The index, which measures the greenback against a basket of major currencies, rose 0.13% to 102.4 after falling 0.87% on Friday after US non-farm payrolls increased by 209,000 in June, missing market expectations for the first time in 15 months.
While details in the employment report reflecting strong wage growth continue to confirm the market’s pricing of another rate hike later this month, the data helped reassure markets that an end to the Fed’s rate hike program is at least close. Even if the cuts were expected before. Later in 2023 now seems unlikely.
The dollar’s decline on Friday and recovery on Monday were broadly based.
The greenback rose as much as 0.55% against the greenback, last up 0.06% to 142.31 after slipping nearly 1.3% on Friday, last down 0.08% at $1.0953 after Friday’s 0.7% jump.
The USD/JPY pair is particularly sensitive to US yields, which paused their recent rally higher after the data, as interest rates in Japan are pegged near zero.
“It’s kind of a relief from the overreaction we saw on Friday. There was an overreaction to the NFP report, so it doesn’t surprise me that the yen is weak today,” said Joseph Capurso. Head of International and Sustainable Economics at the Commonwealth Bank of Australia.
It was the biggest mover, falling about 0.5% on Monday to $1.2780 after rising 0.79% in the previous session to a 15-month high of $1.2850.
For markets focused on the outlook for central bank policy, particularly the Fed, focus now turns to US inflation data due on Wednesday, with expectations for core CPI rising 5% yoy in June.
The second-weakest-performing G10 currency has been boosted this year after data showed that core inflation continued to rise in June, hitting a new record.
The euro was last down 0.88% in front of the crown at 11,544, its lowest level since mid-June.
“The unfavorable trend of core inflation and a weak krone will continue to pressure the Bank of Norway to offer a larger 50 basis point increase at its next policy meeting on August 17,” analysts at MUFG wrote in a note using the currency name for Norway.
“More decisive actions from the Norwegian Bank will provide further support for the krone, but we are not yet convinced that the conditions are in place for a sustainable recovery from undervalued levels.”
However, the situation is different in China, where data on Monday showed China’s factory gate prices fell at the fastest pace in 7-1/2 years in June, and consumer inflation was at its slowest level since 2021, boosting hopes for more support measures. from the Chinese authorities.
The weak data sent the Australian and New Zealand dollars, which are often used as liquid proxies, lower.
It fell 0.72% to $0.663, while it fell 0.4% to $0.6185.
The US dollar rose about 0.1%, at 7,239.
“The weaker consumer price index continues to reflect weak domestic demand, while contraction in the producer price index stresses pressure on factories,” said Christopher Wong, currency analyst at OCBC.
“(It is) basically saying that China needs stimulus support.”