Dollar Weakens as Yen Gains

The dollar index slipped to around 98.8 on Tuesday, declining for a second consecutive session as the yen extended its gains on expectations of more aggressive monetary tightening by the Bank of Japan and continued unwinding of carry trades. In the US, investors turned their attention to inflation data due this week, which could provide greater clarity on the interest rate outlook ahead of the Federal Reserve’s policy meeting next week. Markets are currently pricing in roughly a 60% probability of a 25-basis-point Fed rate hike next week following stronger-than-expected jobs data released on Friday. The European Central Bank is also expected to raise interest rates this week. Meanwhile, investors continued to track developments in the Middle East as renewed US-Iran fighting pushed oil prices higher, keeping inflation risks firmly in focus.

The dollar index held around 99 on Monday after rebounding slightly in the previous session, supported by stronger-than-expected US jobs data that reinforced expectations of a Federal Reserve interest rate hike in September. Data released Friday showed US nonfarm payrolls rose by 162,000 in August, following a revised increase of 23,000 in July and comfortably exceeding forecasts for a gain of 56,000. Meanwhile, the unemployment rate remained unchanged at 4.1%, while annual wage growth slowed to 3.1%, though the moderation was less pronounced than markets had expected. Investors raised the probability of a September Fed rate hike to around 60%, from roughly 50% before the jobs report. Attention now turns to US inflation figures due this week for further clues on the central bank’s policy path. The dollar also benefited from safe-haven demand as the US and Iran exchanged strikes on vessels over the weekend, sending oil prices higher.

The dollar index rose to 99.3 on Friday, rebounding from a two-week low after stronger-than-expected US employment data bolstered expectations for tighter monetary policy. US nonfarm payrolls increased by 162,000 in August, following an upwardly revised gain of 23,000 in July and well above market expectations for a 56,000 increase. Meanwhile, the unemployment rate held steady at 4.1%, while annual wage growth eased to 3.1%, although the decline was smaller than markets had anticipated. Money markets are now pricing in a near 60% probability of a rate hike in September, according to the CME FedWatch Tool.