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A Reuters report detailed how the U.S. dollar inched higher from a two-month low against major currencies on Monday as oil prices climbed due to a muddled Middle East outlook while investors awaited this week’s inflation data for more clues on the Federal Reserve’s rate path. The euro was slightly weaker at $1.1551, hovering near its strongest level since mid-June, while sterling was steady at $1.3486, below its five-week peak. The yen weakened to a low of 158.30 per dollar, continuing to pare intervention-led gains but still well off the roughly 164 multi-decade low hit late last month.
The dollar index, which tracks the currency against six major peers, was up 0.06 percent at 99.7, regaining some ground after hitting the lowest level since June 2, according to the dispatch. Oil prices rose on Monday, with Brent oil futures last up 1.4 percent at roughly $85 per barrel amid continued uncertainty over the reopening of the Strait of Hormuz. Iran said a deal with Oman defining new shipping lanes was in its final stages but added that the U.S. must still meet other conditions, muddling the energy supply outlook.
Data released on Friday showed the U.S. economy unexpectedly shed jobs in July while job gains for the prior two months were revised sharply lower, the Reuters report indicated. That development has added extra weight to this week’s CPI report along with retail sales data as investors look for clues on the path of Fed policy. Futures markets have scaled back the chance of a September rate move to around 44 percent from 67 percent a week ago.
BNY senior EMEA market strategist Geoff Yu wrote in a note that markets need confirmation that softer labor demand is translating into sustainable disinflation rather than simply weaker growth. He added that perceptions around U.S. inflation data will likely be the biggest swing factor this week. U.S. Treasury yields held onto their declines after the jobs report dashed hike bets with those on benchmark U.S. 10-year notes last at 4.637 percent.
A consensus estimate calls for the core CPI to rise 0.2 percent month-on-month in July lifting the annual rate to 2.5 percent and extending a gradual moderation in inflation from 2.6 percent in June the dispatch noted. Producer price data on Thursday and retail sales figures on Friday will further inform the outlook for inflation. NAB senior FX strategist Rodrigo Catril said in a podcast that although there’s a lot of inflation dynamics the Fed will for now stay on the sidelines and wait to see how things play out.
In Asian trading the New Zealand dollar and Australian dollar each slipped 0.1 percent to $0.7062 and $0.5887 respectively according to Reuters. Market participants await the Reserve Bank of Australia’s rate decision on Tuesday with the central bank expected to hold its key rate at 4.35 percent for the rest of the year. The Chinese yuan held steady at 6.7440 near its strongest level in 3-1/2 years after data showed China’s producer price inflation eased last month.
