The U.S. dollar slipped lower Monday, continuing to retreat after Friday’s weak U.S. jobs report cemented expectations of a Federal Reserve rate cut this month.
At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 97.590, after sliding more than 0.5% on Friday.
Fed to cut next week?
The U.S. currency was hit hard at the end of last week after the nonfarm payrolls report showed U.S. job growth weakened sharply in August and the unemployment rate increased to nearly a four-year high of 4.3%.
The Federal Reserve holds its next policy-setting meeting next week, and is widely expected to restart cutting interest rates after holding rates steady this year.
“It was soft enough to have the market starting to speculate whether the Federal Reserve would restart its easing cycle with a 50bp rate cut - as it did last September,” said analysts at ING, in a note.
Investors are now pricing in a 10% chance of an outsized 50-basis-point rate cut, as compared to none a week ago, according to the CME FedWatch tool.
This week sees the release of the U.S. consumer price index for August, “where risks of a 0.4% month-on-month figure (consensus 0.3%) could provide the dollar with some temporary support,” ING added.
Euro held back by French political turmoil
In Europe, EUR/USD climbed 0.1% to 1.1730, helped by data showing German industrial production rose by 1.3% in July compared to the previous month.
However, gains are limited as France’s fourth prime minister in three years, François Bayrou, faces almost certain defeat in a confidence vote later in the session.
France faces acute pressure to repair its finances, with last year’s deficit nearly double the EU’s 3% limit of economic output, but Bayrou’s budget bill is unlikely to secure a majority.
The turmoil threatens France’s ability to rein in its debt, with the country’s 30-year government bond yield last week hitting a level last seen in June 2009.
“It looks like very few of the opposition parties have plans to tackle France’s 5%+ of GDP budget deficit and would prefer to bring down the government,” ING said.
GBP/USD traded 0.1% higher to 1.3520, having risen more than 0.5% on Friday.
“There’s no U.K. data of note this week and few Bank of England speakers,” ING added, suggesting that ranges may be limited “given that next week’s BoE meeting and news on quantitative tightening plans will be far more interesting.”
Yen slips after Ishiba’s resignation
Elsewhere, USD/JPY climbed 0.3% to 147.80, with the Japanese yen hit by the resignation of Prime Minister Shigeru Ishiba, deepening political uncertainty and unsettling financial markets already under strain.
Ishiba stepped down on Sunday following heavy election losses and growing internal party dissent, raising questions about Japan’s fiscal and monetary policy outlook.
“Given FX markets now seem to be taking fiscal risks far more seriously, the weekend development has seen USD/JPY gap above 148,” said ING. “What we would say, however, is that USD/JPY was already discounting a lot of political risk and may again stall in the 148.50/149.00 area rather than pushing above 150.”
Source :
https://www.investing.com/news/forex-news/dollar-slips-ahead-of-fed-meeting-japanese-french-politics-in-spotlight-4228232
