The US Dollar (USD) experienced a slight decline on Monday, with US markets closed for a holiday. This decline comes as investors digest US jobs data indicating signs of cooling, leading to increased speculation that the Federal Reserve may have reached the end of its monetary tightening cycle.
Against a basket of currencies, the dollar inched 0.1% lower to 104.14 but remained close to its two-month peak of 104.44, which was reached on August 25. The index gained 1.7% in August, breaking a two-month losing streak.
Recent data revealed that US job growth accelerated in August, although the unemployment rate rose to 3.8% and wage gains moderated. Additionally, the economy created 110,000 fewer jobs than previously reported for June and July.
Ray Attrill, Head of Foreign Exchange Strategy at National Australia Bank, commented, “The Goldilocks metaphor is much used and abused in economic and financial circles, but in relation to the various ‘soft landing’ signals emanating from the report, on this occasion, it does seem entirely appropriate.”
In addition to the jobs data, other economic indicators, such as moderating inflation and an easing labor market, suggest that the US economy is cooling without experiencing a sharp slowdown. This reinforces hopes that the economy is on track for a soft landing.
Market expectations currently indicate a 93% chance of the Federal Reserve maintaining steady rates this month, and over a 60% probability of no further rate hikes for the remainder of the year, as indicated by the CME FedWatch tool.
With US markets closed on Monday, trading volume is expected to be low, and traders may be hesitant to make significant trades.
UniCredit analysts anticipate that trading will remain subdued on Monday, even with European Central Bank President Christine Lagarde scheduled to speak later in the day.
The euro gained 0.2% against the dollar, reaching $1.0793, just off a 10-week low reached last week. The British pound also saw a 0.3% increase, reaching $1.2627.
British Finance Minister Jeremy Hunt recently stated that inflation is expected to halve by the end of 2023, emphasizing the importance of this goal as he outlined his priorities ahead of the reopening of parliament after the summer break. Revised data published on Friday also showed that the UK economy rebounded faster from the pandemic than previously projected.
Elsewhere, the Japanese yen eased 0.09% to 146.39 per dollar. Traders are closely monitoring any signs of intervention as the yen has been trading around the psychologically important 145 level since mid-August. Last year, Japan intervened in currency markets when the dollar rose above 145 yen, leading to the Ministry of Finance buying yen to push the pair back down to around 140 yen.
The Australian dollar experienced a 0.2% increase, reaching $0.6465, ahead of the Reserve Bank of Australia’s policy meeting on Tuesday. It is widely expected that the bank will maintain its official cash rate at 4.10% on September 5, according to a Reuters poll. Both the Australian dollar and the New Zealand dollar received a boost on Monday from measures taken by Chinese authorities to support China’s property sector.
Meanwhile, the Canadian dollar slipped 0.14% to 1.36 per dollar ahead of the Bank of Canada’s policy meeting later this week. The central bank is expected to hold rates.
Looking ahead, investors will focus on several Fed officials scheduled to speak this week for insights into the central bank’s plans for its next policy meeting on September 19-20.