On Tuesday, the dollar remained close to a two-week high as investors awaited a series of economic data releases, including the US payrolls report on Friday, which could impact the magnitude of a potential interest rate cut by the Federal Reserve. Meanwhile, the yen ended its four-day decline against the dollar following reports that the Bank of Japan governor reiterated in a document to a government panel that the central bank would continue to raise interest rates if economic and inflation conditions align with current policy expectations. Over the past two months, the Japanese yen has strengthened by 10 percent, partly due to official interventions. On Tuesday, the yen's gains led to a 0.7 percent drop in the dollar to 145.975.
"The governor of the Bank of Japan sent a letter to the Japanese government, detailing the decision to raise rates in July and indicating that further rate hikes would follow 'if the economy and prices perform as expected,'" explained Kathleen Brooks, research director at XTB. "These comments have supported the yen's rise," she added. The euro declined by 0.3 percent to $1.1039, and sterling fell by 0.17 percent to $1.3124. The dollar index, which compares the US currency against six major rivals, rose by 0.15 percent to 101.80, near its highest level in two weeks. The index had dropped by 2.2 percent in August amid expectations of US rate cuts.
This week, investors are keenly focused on the US payrolls data scheduled for Friday, following Federal Reserve Chair Jerome Powell's indication last month of an impending start to interest rate cuts due to concerns about a weakening labor market. Before that, Wednesday's job openings data and Thursday's jobless claims report will also be closely watched. According to the CME FedWatch tool, markets currently estimate a 69 percent chance of a 25 basis points cut and a 31 percent chance of a 50 basis points cut at the Fed's September 17-18 meeting. The upcoming jobs data will be critical in determining whether the Fed opts for a 25 or 50 basis points cut in September, according to Charu Chanana, head of currency strategy at Saxo.
Economists surveyed by Reuters predict an increase of 165,000 US jobs in August, up from 114,000 in July. Data released on Friday indicated that the personal consumption expenditures (PCE) price index, the Fed's preferred inflation gauge, rose by 0.2 percent in July, in line with forecasts, paving the way for a rate cut. "We are currently in a Goldilocks scenario, and thus we maintain our belief that the Fed will begin cutting rates this month in a gradual manner," stated Win Thin, global head of market strategy at Brown Brothers Harriman. However, markets are expecting a total of 100 basis points in cuts from the remaining three meetings this year. The Australian dollar fell by 0.84 percent to $0.6735, and the New Zealand dollar traded 0.7 percent lower at $0.6189, after surging by 5 percent last month.
