Written by Ankur Banerjee
SINGAPORE (Reuters) – The dollar edged up and held near a two-week high on Tuesday as investors braced for a slew of economic data, including U.S. jobs data on Friday, that could influence the size of an expected interest rate cut by the Federal Reserve.
The euro fell 0.16 percent to $1.1055, not far from a two-week low of $1.1042 touched in the previous session, while sterling fell 0.17 percent to $1.3124.
The U.S. dollar index, which measures the greenback against six major currencies, rose 0.11 percent to 101.77, just below a two-week high of 101.79 touched on Monday. The index fell 2.2 percent in August on expectations of a U.S. interest rate cut.
Investors will be fully focused this week on U.S. payrolls data due on Friday after Federal Reserve Chairman Jerome Powell last month backed the imminent start of interest rate cuts citing concerns about the labor market.
In the meantime, Wednesday’s job openings data and Thursday’s unemployment claims report will be in the spotlight.
The CME FedWatch tool showed that markets are 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.
Charu Chanana, head of currency strategy at Saxo, said that this week’s upbeat labor data will be crucial in breaking the deadlock over a 25 or 50 basis point rate cut in September.
“If data remains strong, a 25 basis point cut is likely. However, weak nonfarm payrolls, especially if they fall below 130,000 as the unemployment rate rises again, could push the interest rate market closer to pricing in a 50 basis point cut.”
Economists polled by Reuters expect the United States to add 165,000 new jobs in August, up from a gain of 114,000 jobs in the previous month.
Win Thin, head of global market strategy at Brown Brothers Harriman, said last week’s data confirmed what markets already knew. “It means that U.S. economic growth remains strong, driven by strong consumption, even as the contraction continues slowly but steadily,” he said.
Data on Friday showed the personal consumption expenditures price index – the Federal Reserve’s preferred measure of inflation – rose 0.2% in July, in line with economists’ expectations and keeping the U.S. central bank on track to cut interest rates.
“We are in a golden moment now, so we continue to believe that the Fed will start cutting rates this month in a very gradual manner,” Thain said in a note.
However, markets expect 100 basis point cuts in the remaining three meetings this year.
The yield on the 10-year U.S. Treasury note was little changed at 3.915% as trading resumed in Asia after a U.S. holiday on Monday.
Elsewhere, the yen was at 146.50 yen against the dollar, up 0.3% on the day but still close to a two-week low of 147.16 hit on Monday.
Analysts said the yen’s moves may have been a reaction to Monday’s slide when U.S. markets were closed, leading to thin liquidity and sudden moves.
The Australian dollar fell 0.8% to $0.6737 ahead of Wednesday’s GDP report, after rising 3.5% in August. The New Zealand dollar fell 0.75% to $0.61875, after rising 5% last month.
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