Dollar drops slightly as currency markets pull back after Friday’s moves

  • The dollar falls; Aussie, Kiwi and British Pound gain
  • Traders price within 69% chance of 75 basis point Fed hike in September

LONDON, Aug 8 (Reuters) – The dollar fell on Monday, shedding some of the gains it made on Friday’s U.S. jobs data, as currency markets retreated on their initial reaction and waited Wednesday’s inflation data to give more clues on the federal government. Reserve’s next steps.

Higher-than-expected U.S. jobs numbers last week saw the dollar strengthen against its major peers as the data was seen by traders as an indication that the Fed could raise interest rates. interest more aggressively to fight inflation. Read more

But that move cooled on Monday, with the dollar index slipping to 106.51 at 10:35 GMT, down 0.1% on the day, from Friday’s 10-day high of 106.930.

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Traders were pricing in a roughly 69% chance of the Fed raising rates by 75 basis points (bps) at its September meeting, according to data from Refinitiv.

Fed Governor Michelle Bowman said on Saturday that the U.S. central bank should consider further 75 basis point hikes in upcoming meetings to bring inflation down. Read more

“The US dollar was supported by a combination of stronger US economic data releases and hawkish comments from regional Fed chairs that encouraged market participants to push back expectations of a dovish Fed policy pivot,” wrote MUFG currency analysts Derek Halpenny and Lee Hardman. in a note to customers.

“We believe there is room for the US Dollar to rebound further in the near term, and have recommended a new long USD/CAD trade idea to reflect our bullish outlook for the US Dollar.”

Markets are now awaiting US inflation data on Wednesday. Analysts polled by Reuters expect annual inflation to have eased to 8.7% in July from 9.1% previously.

According to Tim Graf, head of EMEA macro strategy at State Street, high inflation combined with Friday’s labor market reading could push the market to fully price the Fed’s hikes for September at 75 basis points.

“If you have both things (job growth and inflation) still very hot, it becomes very difficult, I think, to pull back another 75 basis point hike,” he said. .

As European stock indices rose, riskier currencies strengthened. The Australian dollar, which is seen as a gauge of risk appetite, rallied from Friday’s losses, up 0.8% on the day to $0.6964.

The New Zealand dollar rose 0.5% to $0.62725.

The dollar was stable against the yen, with the pair changing hands at 134.99.

Eurozone bond yields eased back after gaining on Friday’s jobs data. Italian bonds appear to have brushed aside Moody’s decision to downgrade Italy’s rating outlook.

The euro fell 0.1% to $1.0187.

“If calm summer markets spark renewed interest in carry trading, the euro is likely to be one of the preferred funding currencies,” ING FX analyst Chris Turner said in a client note.

The pound rose 0.1% to $1.2083.

Foreign Secretary Liz Truss – who is expected to replace Boris Johnson as prime minister next month – has said she plans to carry out a review of the Bank of England’s mandate. Read more

Markets reacted little to China’s announcement of new military exercises in the seas and airspace around Taiwan. Read more

“We’re still in the realm of politics, thankfully, where righteous outrage doesn’t necessarily move markets,” State Street’s Graf said.

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Reporting by Elizabeth Howcroft; Editing by Alex Richardson

Our standards: The Thomson Reuters Trust Principles.

Elizabeth Howcroft

Thomson Reuters

Reports on the intersection of finance and technology, including cryptocurrencies, NFTs, virtual worlds and money that generates “Web3”.

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