LONDON: The dollar struggled to recover on Monday after its worst week in two months, with Friday's strong U.S. labour market report having failed to change the market view that the Federal Reserve will only raise interest rates once this year, if at all.
The greenback had climbed the week before last after several Fed officials indicated investors could expect at least two hikes this year. But Fed Chair Janet Yellen poured cold water on those comments last week and urged caution on rate rises, driving an almost 2 percent fall in the dollar and suggesting a split in the Fed's rate-setting committee, the FOMC.
Minutes from the FOMC's March meeting are due to be released on Wednesday.
The dollar index, which measures the greenback against a basket of six major currencies, was flat on Monday at 94.639, close to last week's 5-1/2-month low of 94.319.
Friday's nonfarm payrolls report showed 215,000 jobs were added last month and hourly earnings rose 0.3 percent. That gave the greenback only a temporary boost, however, with investors seeing strong data as insufficient to justify a rate-divergence trade on the dollar without validation from the Fed.
"If the (FOMC minutes) offer any more dovish clues then the market will take that as reasonably important," said BMO Capital Markets currency strategist Stephen Gallo.
"But I'm not sure the market is inclined to take anyone else's words as gospel but Yellen's at the moment, and it's pretty evident there's been a shift in thinking towards the top of the food chain."
Speculators slashed their bullish bets on the dollar for a fourth consecutive time in the week up to last Tuesday, data showed on Friday, with net long positions falling to their lowest in nearly two years.
The dollar also slipped against the yen, despite a survey on Monday showing Japanese companies' long-term inflation expectations weakened in March. That suggests the Bank of Japan's adoption of negative interest rates in January has not yet convinced firms price rises will accelerate over time.
The greenback fell 0.2 percent to 111.54 yen, less than one yen away from a 1-1/2-year low of 110.67 yen touched last month.
The euro was flat at $1.1379, not far from a 5-1/2-month high of $1.1438 struck on Friday.
Markit's U.S. manufacturing Purchasing Managers' Index (PMI) for March also improved slightly to 51.5, up from 51.3 in February, in contrast with a weaker reading for Europe.
"Yellen has pretty much decided the dollar's near-term direction, and with U.S. jobs data out of the way, each currency will likely move on domestic factors versus the dollar," said Barclays' chief Japan FX strategist Shin Kadota, in Tokyo.
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