The U.S. dollar eased slightly on Monday, extending declines from Friday after weaker-than-expected U.S. employment figures bolstered expectations of a Federal Reserve rate cut later this month. By 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against six major currencies, fell 0.1% to 97.590, following a 0.5% drop on Friday.
Markets Anticipate Fed Action
The dollar’s slide last week was triggered by the U.S. nonfarm payrolls report, which showed slower job growth in August and an unemployment rate rising to 4.3%, near a four-year high. The Federal Reserve is widely expected to resume easing monetary policy, with a 25-basis-point cut anticipated at next week’s meeting and a small possibility of a 50-basis-point reduction.
Analysts at ING noted that the weak payrolls report “prompted speculation that the Fed could restart its easing cycle with a 50bp cut, similar to last September.” According to the CME FedWatch tool, the probability of such a large cut now stands around 10%, compared with zero a week ago. Investors are also watching the U.S. consumer price index for August, with a higher-than-expected reading potentially offering temporary support for the dollar.
European Currencies Influenced by Politics
The euro traded modestly higher at 1.1730 against the dollar, buoyed by German industrial production data showing a 1.3% monthly increase in July. However, gains were capped by political uncertainty in France, where Prime Minister François Bayrou faces a likely defeat in a confidence vote.
France continues to struggle with a budget deficit exceeding 5% of GDP, far above the EU’s 3% limit, and political turmoil threatens efforts to rein in debt. ING highlighted that opposition parties appear more focused on bringing down the government than addressing fiscal imbalances, while the country’s 30-year bond yield recently reached levels not seen since June 2009.
GBP/USD edged up 0.1% to 1.3520 after a 0.5% gain on Friday. With few notable U.K. economic releases this week and limited Bank of England commentary, ING expects trading ranges to remain narrow ahead of next week’s policy meeting and updates on quantitative tightening.
Yen Weakens on Political Uncertainty
USD/JPY rose 0.3% to 147.80 following the resignation of Japanese Prime Minister Shigeru Ishiba, deepening uncertainty in Tokyo. Ishiba’s departure, after election setbacks and party dissent, raises questions about Japan’s fiscal and monetary outlook. ING analysts noted that markets are pricing in these fiscal risks, pushing USD/JPY above 148, though the pair may encounter resistance around 148.50–149.00. Japan’s Q2 GDP growth was revised higher, supported by strong consumption and inventory gains.
Elsewhere, USD/CNY remained largely steady at 7.1325, while AUD/USD gained 0.3% to 0.6580.
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