The U.S. dollar edged lower on Monday as traders awaited significant U.S. jobs data due later in the week, following hawkish comments from Federal Reserve Chairman Kevin Warsh.
Warsh indicated that the Fed may need to further tighten monetary policy if inflation does not trend down toward 2%, sparking renewed expectations for a possible rate hike at the Fed’s September 15-16 meeting.
What we’re watching: Odds of a September rate hike jumped to 64% after Warsh’s remarks, up from about 35% previously, based on Fed funds futures pricing.
- August jobs data is expected to show a gain of 55,000 jobs, after July’s report surprisingly showed a decline in employment; analysts say consecutive declines could make a rate hike less likely.
- Additional key U.S. economic reports are due soon, including producer price inflation (September 10) and consumer inflation (September 11).
State of play: The euro and British pound both strengthened against the dollar, remaining on track for a second consecutive month of gains, while the dollar index fell 0.14% to 99.54.
- The dollar index remains headed for a second straight monthly decline, as earlier U.S. Treasury bond-buyback plans have encouraged some to bet against the dollar.
- Rising tensions in the Persian Gulf pushed oil prices higher, with U.S. forces striking Iran’s Larak Island in the first such action since late July.
- Attention is also turning to a U.S.-hosted G20 finance meeting, with markets watching for policy responses to Iran tensions, U.S. debt, and bond yields.
- The Japanese yen strengthened slightly after earlier losses, amid continued pressure from a wide gap in interest rates and Bank of Japan’s cautious monetary stance.
