In the absence of U.S. markets due to a holiday, the dollar edged lower on Monday, reflecting the impact of U.S. jobs data that hinted at a cooling economy. Investors are now considering the possibility that the Federal Reserve’s monetary tightening cycle might be reaching its conclusion.
Against a basket of currencies, the dollar dipped by 0.1 percent to 104.14, although it remained near its two-month peak of 104.44, which it reached on August 25. This performance follows a robust August for the dollar, where it gained 1.7 percent, snapping a two-month losing streak.
Friday’s data revealed that U.S. job growth had accelerated in August, but it was accompanied by a rise in the unemployment rate to 3.8 percent, along with more moderate wage gains. Additionally, the economy had created 110,000 fewer jobs than initially reported for June and July.
Ray Attrill, Head of Foreign Exchange Strategy at National Australia Bank, commented, “The Goldilocks metaphor is much used and abused in economic and financial circles, but in relation to the various ‘soft landing’ signals emanating from the report, on this occasion, it does seem entirely appropriate.”
A series of economic indicators showing moderating inflation and a softer labor market have contributed to the perception that the U.S. economy is gradually cooling without experiencing a sharp slowdown, fostering hopes of a soft landing.
Market expectations now suggest a 93 percent probability that the Federal Reserve will maintain interest rates this month, with a 60 percent likelihood of no further rate hikes this year, according to the CME FedWatch tool.
With U.S. markets closed on Monday, trading is expected to be subdued with thin liquidity, and traders may be cautious about making significant bets.
UniCredit analysts anticipate that trading activity will remain restrained, even with European Central Bank President Christine Lagarde scheduled to speak later in the day.
In the currency markets, the euro made modest gains, rising 0.2 percent to $1.0793, slightly off a 10-week low against the dollar that it touched last week. The British pound also advanced, increasing by 0.3 percent to $1.2627.
Elsewhere, the yen weakened by 0.09 percent to 146.39 per dollar. The Japanese currency had been hovering around the psychologically important 145 level since mid-August, with traders keeping a close watch for any signs of intervention.
The Australian dollar saw a 0.2 percent increase to $0.6465 ahead of the Reserve Bank of Australia’s policy meeting on Tuesday, where it is expected to maintain current rates. A Reuters poll indicated that all but two of 36 economists anticipated the RBA would hold its official cash rate at 4.10 percent on September 5.
The Canadian dollar, on the other hand, slipped 0.14 percent to 1.36 per dollar ahead of the Bank of Canada’s policy meeting later this week, with the central bank expected to hold rates steady.
Looking ahead, investors will closely monitor speeches from several Federal Reserve officials scheduled for this week, seeking insights into the central bank’s upcoming policy meeting on September 19-20.