Dollar Hovers Near Two-Month Low Ahead of US Inflation Data

US, Aug 10 : The US dollar remained close to a two month low against major currencies on Monday as traders assessed the latest weakness in the American labour market and awaited key inflation figures that could influence the Federal Reserve’s interest-rate decisions.

The euro edged up to $1.1558, staying close to its strongest level since mid June. Sterling was largely unchanged at $1.3490, near a five week high, while the Japanese yen stood at 157.90 per dollar. The yen has surrendered some of its recent intervention-related gains but remains considerably stronger than its multi decade low of around 164 recorded late last month.

The dollar index, which measures the greenback against six major currencies, was little changed at 99.6. The gauge remained close to its weakest level since June 2, reflecting growing uncertainty over the outlook for US monetary policy.

Weak Jobs Data Weighs on Rate Expectations

Investor sentiment shifted after data released on Friday showed the US economy unexpectedly lost jobs in July. Employment increases reported for the previous two months were also revised sharply lower, weakening expectations that the Federal Reserve could raise interest rates at its next meeting.

The softer labour-market figures triggered a decline in US Treasury yields. The benchmark 10 year Treasury yield was last reported at 4.637%.

Interest-rate futures now indicate that traders see roughly a 44% probability of a September rate move, down substantially from about 67% a week earlier.

Geoff Yu, senior EMEA market strategist at BNY, said the weaker employment signal had lowered expectations for real interest rates and contributed to the dollar’s decline. However, he noted that markets had not yet shifted towards a clear easing outlook.

Inflation Data in Focus

The next major test for financial markets will be the US consumer price index, due this week. Economists expect core CPI to increase 0.2% month-on-month in July, taking the annual rate to 2.5%. Core inflation stood at 2.6% in June.

Investors will closely examine the figures for signs that price pressures are continuing to moderate. The data could play an important role in determining whether policymakers have room to adjust borrowing costs in the coming months.

Producer price figures scheduled for Thursday and retail sales data due Friday are also expected to provide further clues about inflationary pressures and the strength of consumer demand.

Rodrigo Catril, senior FX strategist at NAB, said the Federal Reserve was likely to remain cautious for now and assess how economic conditions develop before making its next policy decision.

Oil Prices Gain Amid Hormuz Uncertainty

Oil prices moved higher on Monday as uncertainty persisted over the reopening of the Strait of Hormuz, a crucial route for global energy shipments.

Brent crude futures gained about 1.4% to around $85 a barrel. Iran said negotiations with Oman on defining new shipping lanes were nearing completion, although Tehran indicated that Washington would still need to meet additional conditions.

Australian, New Zealand Dollars Ease

In Asian trading, the Australian and New Zealand currencies weakened slightly. The Australian dollar fell 0.1% to $0.5889, while the New Zealand dollar declined 0.1% to $0.7062.

Markets are also preparing for the Reserve Bank of Australia’s policy decision on Tuesday. The central bank is widely expected to keep its benchmark interest rate at 4.35% for the remainder of the year.

With US inflation figures approaching, currency markets are likely to remain sensitive to incoming economic data as traders reassess the Federal Reserve’s policy trajectory.