SINGAPORE: The dollar fluctuated in cautious trade on Monday as investors weighed some signs of cooling in U.S. jobs data, boosting expectations that the Federal Reserve may end its monetary tightening cycle.
Against a basket of currencies, the dollar inched down 0.048% to 104.18, but remained close to a two-month high of 104.44 hit on Aug. 25. The index rose 1.7% in August, snapping a two-month losing streak.
With U.S. markets closed on Monday, liquidity could be reduced, leaving traders hesitant to place large bets.
Data on Friday showed U.S. job growth picked up in August, but the unemployment rate jumped to 3.8%, while wage gains slowed. The economy created 110,000 fewer jobs in June and July than previously reported.
“The Goldilocks trope has been used and abused a lot in the economic and financial world, but given the various ‘soft landing’ signals in the report, this one seems entirely appropriate,” said Ray Atrill, director of foreign exchange at The Australian National Bank strategy.
A flurry of economic data highlighting moderating inflation and a loose labor market added to the impression that the U.S. economy is cooling but not sharply, boosting hopes for a soft landing.
However, Citi strategists warned of a hard landing, saying in a note that “sticky wages and price inflation will lead to higher long-term policy rates and ultimately a sharp slowdown in economic activity.”
One question for clients is whether an unexpected downturn in U.S. economic activity data will materialize and push the dollar lower, said Paul Mackel, global head of FX research at HSBC.
“It’s certainly a risk, but activity data in the euro zone is still trending downwards, and things haven’t improved much in China. Unless those data improve materially, it’s going to be harder for the dollar to fall.”
Michael also said that if the U.S. data pulse starts to slow rapidly, that would add to the gloom over the global economy, which typically coincides with a stronger dollar.
Investors will be focusing on speeches by a number of Fed officials this week for clues on what the central bank will do at its next policy meeting on Sept. 19-20.
The CME FedWatch tool shows that the market sees a 93% chance that the Fed will keep rates unchanged this month, while there is a more than 60% chance of no rate hikes this year.
The yen rose 0.06% to 146.16 against the dollar. The Asian currency has been trading around the psychologically important 145 level since mid-August, with traders watching closely for any signs of intervention.
Japan intervened in currency markets last September when the dollar rose above 145 yen, prompting the finance ministry to buy the yen and push the pair back to around 140 yen.
The euro was up 0.06% against the dollar at $1.078 and the pound was up 0.11% on the day at $1.2602.
AUD/USD rose 0.2% to $0.6463 ahead of Tuesday’s Reserve Bank of Australia policy meeting, with the Aussie expected to remain unchanged. All but two of 36 economists said the RBA will keep the official cash rate at 4.10% on Sept. 5, according to a Reuters poll.
The Australian and New Zealand dollars were boosted on Monday by measures by Chinese authorities to help shore up China’s real estate sector.
The Canadian dollar rose 0.07% to C$1.36 to the U.S. dollar ahead of the Bank of Canada’s policy meeting this week, when the central bank is expected to keep rates unchanged.
In cryptocurrencies, bitcoin rose 0.95% to $25,997.50. Ethereum rose 0.67% to $1,638.30.
