The U.S. dollar gained on Monday as oil prices increased ahead of Wednesday's closely watched consumer price inflation report for July, after a much weaker-than-expected jobs report on Friday cast doubt on the likelihood of a near-term Federal Reserve rate hike.
Fed funds futures traders are now pricing in 52% odds of a hike at the Fed's September meeting, down from 67% a week ago. Analysts say slowing job growth and easing oil prices have both contributed to the lower odds of a near-term hike.
Yen weakens sharply against the dollar
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.20% to 99.80, with the euro down 0.13% at $1.1542.
The Japanese yen weakened 0.84% to 159.14 per dollar, on pace for its steepest daily decline against the greenback in almost five months.
The currency has pared back some of its intervention-driven gains but remains well off the roughly 164 multi-decade low touched late last month.
Speculators slashed their bearish bets on the Japanese yen by the most in over 12 years, according to data on Friday from the Commodity Futures Trading Commission, reflecting the coordinated effort by Japanese and U.S. authorities to strengthen the currency.
The data showed the net short position in the yen fell by $8.865 billion to $3.604 billion in the week to August 4, the largest drop in absolute terms since March 2014.
Meanwhile, speculators increased their net long position in the dollar in the latest week to the highest level since December 2022.
Traders look to CPI, PPI and retail sales
“September was starting to look highly likely and then not only did we get a bad jobs report, but terrible revisions as well,” said Adam Button, chief currency analyst at investingLive.
Wednesday's consumer price index data could spark another shift in expectations if it points to a reacceleration in price pressures. Producer price data on Thursday and retail sales figures on Friday will offer further clues on the path of inflation.
"Fresh USD downtrends are starting to form following a series of bearish USD catalysts," analysts at TD Securities said in a report. However, "we still expect the USD to stay more supported against G10 currencies until soft inflation data allows the market to price out near-term Fed rate hikes."
Australian dollar slips before RBA decision
The Australian dollar weakened 0.16% to $0.7056 before the Reserve Bank of Australia's rate decision on Tuesday, with the central bank widely expected to hold its key rate at 4.35% through the rest of the year.
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