Authors: Saqib Iqbal Ahmed and Amanda Cooper
NEW YORK (Reuters) – The dollar held near a two-week high against the euro on Tuesday as investors braced for a week of data, including a U.S. jobs report on Friday that could affect the path of interest rate cuts by the Federal Reserve.
Investors’ attention this week will be focused primarily on U.S. jobs data after Federal Reserve Chairman Jerome Powell last month backed an imminent start to interest rate cuts, echoing concerns about an easing labor market.
Economists polled by Reuters expect U.S. job creation to enhance by 165,000 in August, compared with an enhance of 114,000 in July.
Before that, the spotlight will be on job vacancy data released on Wednesday and the unemployment claims report on Thursday.
A gauge of U.S. manufacturing rose last month from an eight-month low hit in July on improved hiring, but the overall trend still points to faint factory activity, data showed on Tuesday.
The euro fell 0.3% against the dollar on Tuesday to $1.1043, after falling to a two-week low of $1.103375 earlier in the session.
“We could see some intraday volatility ahead of the jobs release, similar to what we’re seeing today as US participants return from Labor Day, although I think most participants will look to preserve stocks ahead of the main event later in the week,” said Michael Brown, senior research strategist at Pepperstone.
Markets are pricing in a 69% chance of a 25 basis point (bps) cut when the Fed meets on Sept. 17 and 18, with a 31% chance of a 50 bps cut, the CME FedWatch tool showed. About 100 bps of cuts are priced in for the year in total.
AUGUST SLIDE
Upcoming data will also provide clues as to whether the dollar’s August decline was overdone or whether it is poised for further declines.
“A weaker jobs report will likely lead to a weaker dollar,” Fawad Razaqzada, market analyst at StoneX, said in a note.
The dollar index, which measures the U.S. currency’s strength against six major currencies, fell 2.2% in August, its worst monthly performance since November. The index was up 0.14% on Tuesday at 101.80.
The dollar weakened 1% against the yen on Tuesday to 145.51 yen after media quoted the governor of the Bank of Japan as reiterating in a document submitted to a government panel on Tuesday that the central bank would continue to raise interest rates if the economy and inflation performed in line with policymakers’ expectations.
The Japanese yen has gained 10 percent over the past two months, helped in part by government intervention.
“The Governor of the Bank of Japan has written a letter to the Japanese government explaining the decision to raise interest rates in July. He also said the BOJ will continue to raise interest rates “if the economy and prices behave in line with expectations,” said XTB Research Director Kathleen Brooks.
“The yen strengthened on those comments,” she said.
The pound fell against the dollar on Tuesday as investors took profit from the pound’s August rally, its biggest monthly gain in 10 months. The British currency was last down 0.4% at $1.30965.
A stronger U.S. dollar weighed on the Australian and New Zealand dollars, which fell on Tuesday after ending August with significant gains.
The decrease was 1.1% and the decrease was 0.82%.
