The U.S. dollar stabilizes with tight sideways trading on Monday weighed down by the holiday in the U.S. market as a result, with traders awaiting key labor market data for evidence of possible Fed rate cuts.
At 16:40 Riyadh time, the US dollar index records 101.6 without much movement against a basket of 6 foreign currencies, led by the euro and sterling. Activity eased on Monday as the United States is on Labor Day holiday.
Dollar focuses on payroll report
The dollar has rebounded over the past week, having fallen around 5% since the beginning of July, and attention is now turning to the US jobs report this weekend.
The US payroll jobs report, due on Friday, will be crucial after Federal Reserve Chairman Jerome Powell shifted from the battle against inflation to preparing to protect against job losses, suggesting a possible 25 basis point rate cut later this month.
A result, in line with expectations of an increase of 164,000 nonfarm payrolls and a 4.2% unemployment rate, is likely to reduce the chance of a 50 basis point rate cut altogether, and a very strong report will be required to get markets to abandon 25 basis points.
Ahead of Friday’s report, there are other updates on labor market health, starting with Wednesday’s Joultz job vacancies report, which also contains data on layoffs. UNDP private sector employment data will be released on Thursday, along with the weekly report on initial jobless claims.
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EUR Rebounds Despite Weak Data and Political Uncertainty
In Europe, the EUR/USD rose 0.2% to 1.1071, consolidating after earlier hitting 1.1043, its lowest level since August 19.
Data on manufacturing activity in the euro area remained in contraction territory in August, with the final Eurozone manufacturing PMI compiled by global S&P coming in at 45.8 in August, strongly below the 50 mark separating growth from contraction.
The European Central Bank cut interest rates in June in a bid to stimulate the region’s economy, and looks likely to do so again later this month after eurozone inflation fell to 2.2% in August, its lowest level in more than three years.
On the political front in Europe, the Alternative for Germany (AfD) became the first far-right party to win elections for a state legislature in Germany since World War II with its result in Thuringia.
The faltering power of the German government could complicate European politics at a time when the bloc’s other major power, France, is still struggling to form a government after snap elections in June and July.
GBP/USD rose 0.1% to 1.3138, as demand for sterling continued on expectations that the Bank of England will keep interest rates high for longer than the US and the Eurozone.
The Bank of England cut interest rates by 25 basis points on August 1 to 5%, and financial markets expect further cuts of 40 basis points by the end of the year.
JPY and yuan fall after PMI data
In Asia, the USD/JPY pair rose 0.4% to 146.69, with the yen slightly weakening after Japanese factory activity contracted again in August, a private sector survey showed earlier on Monday.
The final Japan Manufacturing PMI' Manufacturing PMI}} (PMI) rose to 49.8 in August versus 49.1 in July, rising from 49.5 in the fast reading. It remained below the 50.0 threshold separating growth from contraction for two consecutive months.
The yuan USD/CNY rose 0.3% to 7.1105, with the yuan weakening after China’s ‘official’ PMI data on Saturday gave the world’s second-largest economy the first insight into the performance of the world’s second-largest economy in August, with manufacturing activity falling to a six-month low and contracting for the fourth consecutive month.
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In Asia, USD/JPY rose
