NEW YORK: The dollar edged lower on Monday as traders waited on key US jobs data due later this week, after hawkish remarks from Federal Reserve Chairman Kevin Warsh on Friday renewed bets on a September interest rate hike.
Traders will be focused on jobs and inflation data for August that is due before the Fed’s September 15-16 meeting for clues on whether a hike is likely.
The US central bank will “have work to do” if policymakers do not get the confidence they need that inflation is heading down to 2 percent, Warsh said on Friday, in his clearest indication yet that further tightening may be needed to curb price pressure.
“Warsh’s prepared remarks seemed designed to lift rate-hike expectations, rebalance the September debate towards the hawks and rebuild his inflation-fighting credibility,” said Elwin de Groot, head of macro strategy at Rabobank.
Fed funds futures traders are now pricing in 64 percent odds of a September rate hike, up from around 35 percent before Warsh’s comments on Friday.
This week’s jobs report for August is expected to show that employers added 55,000 jobs during the month, according to the median estimate of economists polled by Reuters. It comes after July’s report showed that employers unexpectedly cut jobs during the month.
“If we get an outright decline in jobs, I don’t see how the Fed can raise interest rates. I don’t think that they’ve ever raised interest rates after the economy had back-to-back job losses,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
August’s producer price inflation report is due on September 10 and consumer price inflation for the month is scheduled for September 11.
The euro rose 0.12 percent at USD1.1598, while sterling strengthened 0.07 percent to USD1.3544. Both currencies remained on track for a second consecutive month of gains.
The dollar index, which measures the US currency against six major peers, was down 0.14 percent to 99.54 after hitting 99.73 on Friday, its strongest since August 17.
The index remains on track for a second consecutive monthly decline after US Treasury bond-buyback plans earlier in the month revived debasement trades.
Elsewhere, renewed tensions in the Gulf drove oil prices higher, with Brent crude futures last up more than 3 percent.
US forces struck Iran’s Larak Island on Sunday, a US official said, marking the first known American strikes on Iran since late July.
Focus will turn to a US-hosted meeting of G20 finance ministers and central bank governors on Monday and Tuesday. Markets will watch for signs of coordinated efforts to sever ties with Iran, as well as measures aimed at easing concerns over rising US debt and bond yields.
A persistently weak yen is also in focus, with the dollar’s renewed strength adding pressure on the Japanese currency after it surrendered much of the gains made following July’s intervention.
The Japanese yen strengthened 0.17 percent to 159.79 per dollar, after sliding beyond 160 per dollar on Friday.
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