The US dollar edged higher on Monday after falling to a 2-month low, as rising oil prices and uncertainty around the Middle East pushed investors to focus on this week’s inflation data for signals on the Federal Reserve’s next policy move.
The euro slipped slightly to $1.1551, remaining close to its strongest level since mid-June, while the pound was steady at $1.3486. The yen weakened to 158.30 per dollar, continuing to give up gains linked to intervention concerns but remaining stronger than the roughly 164 level reached late last month.
The Dollar Index rose 0.06% to 99.7, recovering from its lowest level since June 2.
Oil prices also moved higher, with Brent crude gaining 1.4% to around $85 per barrel as uncertainty continued over the reopening of the Strait of Hormuz. Iran said discussions with Oman on new shipping lanes were nearing completion but noted that the US still needed to meet other conditions.
Markets are also assessing weaker US labour data. The US economy unexpectedly lost jobs in July, while employment gains for the previous 2 months were revised lower. The developments have reduced expectations of a Federal Reserve rate hike next month.
Attention is now turning to the US Consumer Price Index (CPI) and retail sales data due this week. Markets are looking for evidence that weaker labour demand is translating into sustained easing in inflation.
The futures market has reduced the probability of a September Fed move to around 44%, from 67% a week earlier. US 10-year Treasury yields remained lower at 4.637%.
Economists expect core CPI to rise 0.2% month-on-month in July, taking the annual rate to 2.5%, compared with 2.6% in June. Producer price data due Thursday and retail sales figures expected Friday will provide further clues on the inflation outlook.
“Although there’s a lot of inflation dynamics, the Fed will for now stay on the sidelines and wait to see how things play out,” said Rodrigo Catril, senior FX strategist at NAB.
In Asia, the New Zealand dollar and Australian dollar each declined 0.1% to $0.7062 and $0.5887, respectively.
Markets are also awaiting the Reserve Bank of Australia’s rate decision on Tuesday. The central bank is expected to keep its key rate at 4.35% for the rest of the year.
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