NEW YORK/MUMBAI :The dollar clung to modest gains against major currencies on Monday, stabilising after a steep fall last week that followed remarks from Federal Reserve Chair Jerome Powell that raised expectations of a rate cut next month.
The euro declined 0.18 per cent to $1.1699, pulling back from a four-week high of $1.174225 touched on Friday. Sterling and the Swiss franc were each down 0.1 per cent.
“The dollar is consolidating today to relatively narrow ranges,” said Marc Chandler, chief market strategist, Bannockburn Global Forex. “I think it’s going to take more data … to really impact expectations of the Fed. That’s really the key thing right now.”
Major brokerages, including Barclays, BNP Paribas and Deutsche Bank, expect a 25-basis-point Fed rate cut in September following Powell’s remarks on Friday when he said risks to the U.S. jobs market were rising, although he also said inflation remained a threat.
Expectations of policy easing and a slowing U.S. economy, alongside lingering worries about the U.S. fiscal position, are likely to exert pressure on the U.S. dollar, said Samy Chaar, chief economist at Lombard Odier.
Traders price in 86 per cent odds of a quarter-point cut on September 17, up from around 70 per cent before Powell delivered his speech, according to CME’s FedWatch tool.
Measured against a basket of six major currencies, the dollar has weakened by more than 9.5 per cent this year. It was last up 0.05 per cent at 97.88. The euro has been the lead gainer in the basket with a near 13 per cent rise this year.
Chaar expects the euro to strengthen to about $1.20-$1.22 over the next six-to-12 months.
Meanwhile, euro zone bond yields moved higher on Monday, reversing a fall from late last week as traders reassessed their expectations for the U.S. Federal Reserve and the impact on Europe. They also processed data showing an uptick in German business morale.
Germany’s 10-year bond yield, the benchmark for the euro zone, rose 5 basis points to 2.77 per cent, nearing a five-month peak of 2.787 per cent hit last week.
U.S. Treasury yields were also slightly higher across the curve as traders calibrated positioning. The two-year Treasury yield, especially sensitive to interest rate expectations, was last up 4.4 basis points at 3.73 per cent.
Apart from the Fed’s policy path, investors are likely to stay focused on U.S. President Donald Trump’s attacks on Powell and other Fed policymakers, which have raised concerns about the central bank’s independence.
“Renewed efforts to reshape the Fed present a potential challenge to longer maturities,” analysts at Goldman Sachs said in a note. The 30-year U.S. Treasury yield was last at 4.906 per cent.
Upcoming data points include the Fed’s preferred inflation gauge, the PCE deflator, on Friday, and monthly payrolls figures for August, due a week later.
Elsewhere, the Chinese yuan leapt to the strongest level in a month, boosted by broad weakness in the dollar.
In cryptocurrencies, ether fell 2.86 per cent on Monday after touching a record high of $4,955.14 over the weekend. Bitcoin was down about 0.97 per cent to $111,656.02.
