The U.S. dollar weakened slightly on Monday, extending losses from Friday after disappointing U.S. employment data reinforced expectations that the Federal Reserve may cut interest rates later this month. At 04:15 ET (08:15 GMT), the Dollar Index, which measures the greenback against six major currencies, fell 0.1% to 97.590, following a decline of more than 0.5% on Friday.
Fed Rate-Cut Speculation Intensifies
The dollar came under pressure at the end of last week after the U.S. nonfarm payrolls report revealed a sharp slowdown in job growth for August and an increase in the unemployment rate to 4.3%, a near four-year high. Investors now anticipate that the Federal Reserve could resume cutting rates after keeping them steady this year.
Analysts at ING noted that the report was “soft enough to trigger market speculation about a potential 50-basis-point rate cut, similar to last September.” According to the CME FedWatch tool, markets are currently pricing in roughly a 10% chance of such an outsized cut, compared with zero a week ago.
This week, markets will focus on the U.S. consumer price index for August. ING highlighted that a month-on-month increase of 0.4% (versus the 0.3% consensus) could provide temporary support for the dollar.
European Currencies Impacted by Political Developments
In Europe, the euro edged up 0.1% to 1.1730 against the dollar, supported by data showing German industrial production rose 1.3% in July from the previous month. However, gains were limited as French political uncertainty weighed on sentiment. Prime Minister François Bayrou, France’s fourth in three years, faces near-certain defeat in a confidence vote.
France’s efforts to reduce its budget deficit—almost double the EU’s 3% of GDP limit last year—remain under pressure. ING noted that few opposition parties have concrete plans to tackle the 5%-plus deficit, and political instability could continue to weigh on government bonds, with the 30-year yield last week hitting levels not seen since June 2009.
The British pound traded slightly higher at 1.3520 against the dollar, following a 0.5% gain on Friday. ING observed that with little U.K. economic data this week and few Bank of England speakers, trading ranges may remain narrow until next week’s BoE meeting and potential updates on quantitative tightening.
Yen Weakens Amid Japanese Political Turmoil
USD/JPY rose 0.3% to 147.80 after Japanese Prime Minister Shigeru Ishiba resigned, adding to political uncertainty and unsettling markets. Ishiba stepped down following heavy election losses and internal party dissent, raising questions about Japan’s fiscal and monetary policy direction.
ING analysts noted that “FX markets appear to be taking fiscal risks more seriously, pushing USD/JPY above 148,” but caution that the pair may stall around 148.50–149.00 rather than break 150. Japan’s economy grew faster than initially estimated in Q2, supported by stronger consumption and inventory growth.
Elsewhere, USD/CNY was largely steady at 7.1325, while AUD/USD gained 0.3% to 0.6580.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Leave a Reply