Dollar slips in thin holiday trading on bets Fed is done with rate rises

SINGAPORE/LONDON, Sept 4 – The dollar edged lower on Monday, with US markets closed for a holiday, as investors weighed US jobs data that showed some signs of cooling, boosting bets the Federal Reserve could be at the end of its monetary tightening cycle.

Against a basket of currencies, the dollar inched 0.1% lower to 104.14 but remained close to the two-month peak of 104.44 it touched on August 25. The index gained 1.7% in August, snapping its two-month losing streak.

Data on Friday showed US job growth picked up in August, but the unemployment rate jumped to 3.8%, while wage gains moderated. The economy created 110,000 fewer jobs than previously reported in June and July.

“The Goldilocks metaphor is much used and abused in economic and financial circles, but in relation to the various ‘soft landing’ signals emanating from the report, on this occasion it does seem entirely appropriate,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank.

A string of economic data highlighting moderating inflation as well as an easing labour market have added to the impression the US economy is cooling without slowing sharply, reinforcing hopes that the economy is set for a soft landing.

Markets are pricing in a 93% chance of the Fed holding steady on rates this month, and over a 60% probability of no more hikes this year, CME FedWatch tool showed.

With US markets closed on Monday, liquidity is likely to be thin and traders hesitant in placing large bets.

Analysts at UniCredit expect trading to remain subdued on Monday despite European Central Bank President Christine Lagarde being scheduled to speak later in the day.

The euro was up 0.2% at USD 1.0793, just off a 10-week low touched last week against the dollar. Sterling was up 0.3% at USD 1.2627.

British finance minister Jeremy Hunt said at the weekend that inflation was on track to halve by the end of 2023, vowing to focus on the goal as he laid out his priorities ahead of the reopening of parliament after the summer break.

Revised British data published on Friday showed the economy recovered faster from the pandemic than previously thought.

Elsewhere, the yen eased 0.09% to 146.39 per dollar. The Japanese currency has traded around the psychologically important 145 level since the middle of August, with traders keeping an eye out for any signs of intervention.

Japan intervened in currency markets last September when the dollar’s rise past 145 yen prompted the Ministry of Finance to buy the yen and push the pair back to around 140 yen.

The Australian dollar added 0.2% to USD 0.6465 ahead of the Reserve Bank of Australia policy meeting on Tuesday when it is expected to stand pat. A Reuters poll showed that all but two of 36 economists said the RBA would hold its official cash rate at 4.10% on September 5.

The Aussie dollar and the New Zealand dollar got a lift on Monday from measures from Chinese authorities to help shore up China’s property sector.

The Canadian dollar slipped 0.14% to 1.36 per dollar ahead of Bank of Canada’s policy meeting this week, with the central bank expected to hold rates.

Looking ahead, investor focus will be on a number of Fed officials due to speak this week for clues on what the U.S. central bank will do at its next policy meeting on September 19-20.

(Reporting by Ankur Banerjee in Singapore and Joice Alves in London; Editing by Susan Fenton)