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Forex Update

The U.S. Dollar declined on Monday, losing some of last Friday’s gains from the U.S. jobs data.

Written by Thomas Griffin

Higher-than-forecast employment statistics published last week led to a stronger greenback against major rivals. This was viewed by traders as a sign the Federal Reserve could hike rates more aggressively to combat inflation. Yet in Monday morning trade in Europe, the Dollar index fell to 106.25, a 0.4% decline on the day, compared to the 10-day high of 106.930 recorded on Friday, Reuters news agency reports. Traders were pricing in a 69% probability the Fed would increase rates by 75 basis points at next month’s meeting, according to Refinitiv data. Over the weekend, Federal Reserve Governor Michelle Bowman stated the central bank should contemplate further 75 basis point hikes at future meetings in a bid to lower inflation.

“The U.S. Dollar has been supported by the combination of stronger U.S. economic data releases and hawkish comments from regional Fed presidents that have encouraged market participants to push back expectations for a dovish policy pivot from Fed,” said MUFG currency analysts Derek Halpenny and Lee Hardman. “We believe there is room for the U.S. Dollar to rebound further in the near-term, and have recommended a new long USD/CAD trade idea to reflect our bullish outlook for the U.S. Dollar.” Moreover, the Dollar edged down against the Japanese Yen, with the pair at 134.945 on Monday morning.


Elsewhere, the Australian Dollar rallied on Monday following Friday’s losses, and at the time of writing stood at $0.697, a 0.9% increase. Whereas the New Zealand Dollar rose 0.4% at $0.627. In regard to the Eurozone, bond yields declined after making gains on Friday in the wake of the jobs data. Italian bonds seemed to rebuff an announcement by Moody’s to lower the country’s ratings outlook. The single currency moved up 0.2% to $1.02095. “If quiet summer markets prompt renewed interest in the carry trade, the Euro will probably be one of the preferred funding currencies,” according to ING FX analyst Chris Turner in a note to clients. In the UK, Sterling rose 0.4% at $1.2118 at the time of writing.
 

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