Investing.com – The U.S. dollar stabilized Monday, holding onto the gains seen after Friday’s strong jobs report at the start of a week that includes the release of key inflation data as well as the minutes from the last Federal Reserve meeting. 

At 04:00 ET (08:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower at 102.247. It rose 0.5% on Friday to a seven-week high, logging more than 2% gains for the week, its biggest in two years. 

Payrolls boosts the dollar 

The growth in US quashed fears of a U.S. economic slowdown, and furthered the notion that the Fed will not need to cut interest rates sharply to support the economy, boosting the dollar.

Traders were seen largely wiping out bets on another 50 basis point cut at the next Fed meeting, and were pricing in an over 90% chance of a 25 bps cut, CME Fedwatch showed.

Focus this week is on addresses by a slew of Fed officials, more inflation data, as well as the minutes of the Fed’s September meeting. The Fed had cut rates by 50 bps during the meeting and announced the start of an easing cycle, although it still said future rate cuts will be data-dependent.

“The blowout US jobs report on Friday prompted the kind of hawkish repricing in rate expectations we thought would have materialised over a few weeks,” said analysts at ING, in a note. 

“Markets no longer have pretext to look through Federal Reserve Chair Jerome Powell’s pushback against 50bp cuts, and are now finally aligned with the Dot Plot projections: 25bp cuts in November and December.”  

The safe-haven greenback has also received a boost from the turmoil in the Middle East, with Israel bombing Hezbollah targets in Lebanon and the Gaza Strip on Sunday ahead of Monday’s one-year anniversary of the Oct. 7 attacks that sparked its war.  

Weak German data hits euro

In Europe, drifted 0.1% lower to 1.0965, with the euro weakening after slumped 5.8% on the month in August, another illustration of the economic difficulties the eurozone’s largest economy is struggling with.

for August are due later in the session, and should show how consumers are faring during these tricky times.

ECB chief economist Philip Lane as well as board members Piero Cipollone and Jose Luis Escriva are all scheduled to speak later Monday, and are likely to follow President Christine Lagarde in signalling a brisk pace of further easing. 

slipped slightly to 1.3113, after suffering a 1.9% drop last week, its steepest fall since early 2023.

Bank of England Chief Economist Huw Pill said on Friday the central bank should move only gradually with cutting interest rates, a day after governor Andrew Bailey was quoted as saying the BoE might move more aggressively to lower borrowing costs.

Doubts over BoJ raising rates

fell 0.3% to 148.22, paring back earlier gains after the pair surged to its highest level since mid-August.

The yen was hit by growing doubts over the Bank of Japan’s ability to keep raising interest rates in the coming months, especially amid uncertainty over the upcoming Japanese general elections.

was largely unchanged at 7.0176, with Chinese markets still closed as the country celebrates Golden Week.

By Makiko Yamazaki and Takaya Yamaguchi

TOKYO (Reuters) -Japan’s top currency diplomat on Monday issued a warning against speculative moves on the foreign exchange market as the yen fell below 149 per dollar.

“We will monitor currency market moves including speculative trading with a sense of urgency,” Atsushi Mimura told reporters, reviving a verbal warning tactic that his predecessor, Masato Kanda, frequently used.

Mimura declined to comment on the specifics of the current market situation.

Separately, Katsunobu Kato, the nation’s newly appointed finance minister, said the government would monitor how rapid currency moves could potentially impact the economy and would take action if necessary.

“The government will consider what action should be taken while monitoring the impacts,” Kato said in an interview with a small group of reporters on Monday.

The yen depreciated to 149.10 versus the dollar in early trading on Monday, the weakest since Aug. 16, after a surprisingly strong U.S. jobs report for September led traders to cut bets that the Federal Reserve will make further large interest rate cuts.

Japan last conducted yen-buying intervention in late July to support its currency after it tumbled to a 38-year low below 161 per dollar.

The yen has also been under pressure since new Japanese premier Shigeru Ishiba stunned markets when he said the economy was not ready for further rate hikes, an apparent about-face from his previous support for the Bank of Japan’s unwinding decades of loose monetary policy.

In Monday’s interview, Kato said the government would leave specific policy steps to the Bank of Japan (BOJ), when asked whether the policy rate should be maintained at 0.25%.

“The government hopes that the BOJ will communicate with markets thoroughly and take appropriate policy to achieve its 2% inflation target in a stable and sustainable manner,” he said.

The BOJ in March delivered its first rate hike in 17 years, arguing the pace of price and wage increases showed Japan was finally shaking its entrenched deflationary mindset. The central bank unexpectedly increased rates again in July, triggering a shakeout in domestic markets.

By Stefano Rebaudo

(Reuters) – The U.S. dollar was just off its highest level in seven weeks on Monday after a rally sparked by Friday’s strong U.S. jobs data and an escalation in the Middle East conflict.

The dollar’s gains followed a U.S. jobs report that showed the biggest jump in six months in September, a drop in the unemployment rate and solid wage rises, all pointing to a resilient economy and forcing markets to reduce pricing for Federal Reserve rate cuts.

Many factors that weighed on the greenback through the summer had reversed, analysts said, mentioning fading recession concerns and a price action suggesting the limits of pricing a dovish reaction function have been reached with this dataset.

“We cannot see a driver for rebuilding structural U.S. dollar short positions in the next couple of weeks,” said Francesco Pesole, a forex strategist at ING.

“Markets appear to have given up on another 50 bps cut, and inflation figures shouldn’t change that, and while the Middle East situation may not spiral further, the consensus seems to be that a material de-escalation isn’t likely for now,” he added.

The measure against major peers was up 0.05% at 102.60. It rose on Friday to a seven-week high at 102.69, logging more than 2% gains for the week, its biggest in two years. It was slightly above 100 early last week.

MUFG flagged that it is the second time the dollar index has fallen back towards support at the 100.00-level in recent years. On the last occasion in July 2023, the greenback index tested but failed to break below the 100.00-level before staging a strong rebound (+7.8%) in the following three months.

“The extent of fiscal stimulus in China, which would mostly help economies outside the U.S., will be one of the main factors affecting the dollar in the short term, along with macro data, which can impact the Fed policy path,” said Lefteris Farmakis, forex strategist at Barclays.

China is about to announce the details of its fiscal plan to boost the economy.

In the Middle East, Israel bombed Hezbollah targets in Lebanon and the Gaza Strip on Sunday ahead of the one-year anniversary of the Oct. 7 attacks that sparked its war. Israel’s defence minister also declared all options were open for retaliation against arch-enemy Iran.

The euro stood at $1.0970, down 0.06%.

“Effective fiscal measures in Italy and France would benefit the euro on the margin as they strengthen sovereign creditworthiness and therefore the credibility of the euro area project,” Barclays’ Farmakis argued.

The two countries, that the European Union put under a so-called excessive deficit procedure, are taking measures to reduce their budget deficits.

The yen fell marginally to hit 149.10 per dollar, its weakest level since Aug. 16, before paring losses to trade around 148.60. That came on top of a more than 4% decline last week, its biggest weekly percentage drop since early 2009.

The yen’s underperformance has also to do with last week’s comments from new prime minister, Shigeru Ishiba, which stoked expectations that rate hikes in Japan are further away.

hit a new 2-month high at 4.016%, in London trade.

However, Barclays reckoned they have room to rise by about 20 bps even after accounting for the worst case of downside economic scenarios, arguing that recent jobs data strengthened its conviction in a long and gradual Fed easing cycle.

BofA now forecasts the Fed will cut by 25 bps per meeting until March 2025, and then 25 bps per quarter until end-2025.

Markets expect the Federal Reserve to cut rates by just 25 bps in November, rather than 50 bps, following the jobs data. They now price in a 95% chance of a quarter point cut, up from 47% a week ago, and a 5% chance of no cut at all, according to CME’s FedWatch tool

Sterling fell 0.4% against the dollar.

It recorded its biggest daily fall last week since April after Bank of England Governor Andrew Bailey’s remarks triggered a substantial unwinding of stretched pound net longs positioning which makes the British currency more vulnerable to shifts in sentiment.