NEW YORK: The dollar edged higher against the euro and the yen on Monday as traders exercised caution ahead of what could be a busy week with the long-awaited return of US economic data.
Market reaction to US President Donald Trump’s tariff U-turn on more than 200 food products was muted, with some analysts saying the move was not a surprise due to the cost-of-living issues caused by the levies.
A flood of data that was delayed during the federal government shutdown is pending release starting this week, and is expected to provide clues on the health of the world’s largest economy, with the closely watched September nonfarm payrolls report due on Thursday.
“They are just waiting for the next shoe to drop,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
“The overriding thing is the dollar and US interest rates. People are looking at the September jobs data later this week. Generally, consolidating.”
Despite signs of further weakness in the US economy from recent private-sector data, investors have trimmed expectations of a Fed cut next month, betting that gaps in economic data will delay or even derail further easing.
Markets are now pricing in a 42 percent chance of a 25-basis-point rate cut in December, down from more than 60 percent earlier this month. Goldman Sachs currency analysts cautioned in their week-ahead note that while this week at least offers some data, it is not going to be the most helpful. That’s because it will take time for data to be relevant again, they said, and the upcoming payrolls data is unlikely to settle debates about the outlook.
In the medium term however, they think the incoming data will “show enough downside risks to the labor market to settle the swirling debate within the FOMC (the Fed’s rate-setting committee)” - something that will be negative for the dollar.
“We have to wait until we get some more concrete news out of the US economy, primarily on the employment front,” said Joseph Trevisani, senior analyst, FX Street. “If we don’t get an improvement in the employment figures, especially in the ones the market always looks to, then I think the speculation will start up again on the Fed continuing to lower rates.”
For now the market remains range-bound. The euro was down 0.32 percent on the dollar at USD1.1582, while the yen fell 0.47 percent to 155.255 to the US currency.
The yen hardly reacted to data on Monday that showed Japan’s economy shrank an annualized 1.8 percent in the three months through September, as a drop in exports in the face of US tariffs resulted in the first contraction in six quarters.
The Japanese currency does, however, remain near a nine-month low against the dollar, leaving traders alert to the threat of intervention from Japanese authorities to stem the yen’s decline.
Japan last intervened in the currency market in July 2024 when the yen fell to a 38-year low of around 161.96 to the dollar, as currency weakness stoked sharp food and fuel price inflation. Sterling slipped 0.1 percent on the dollar to USD1.3161. British assets saw a whirlwind Friday session as speculation swirled around the government’s highly anticipated November 26 budget.
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