The US dollar (USD) sank to a three-week low against the yen on Monday and slipped against other major currencies as investors continued to price in expectations that the Federal Reserve is near the end of its tightening cycle.
The Fed, however, is widely expected to raise interest rates by another 25 basis points this month despite Friday’s data showing U.S. job gains were the smallest in 2-1/2 years. The expected rate hike in July comes after a Fed pause in June.
Meanwhile, Norway’s crown, the second-weakest performing currency in the G10 this year, strengthened after data showed core inflation continued to rise in June and hit a fresh record.
The Chinese yuan, on the other hand, slumped against the dollar after weak inflation numbers in the world’s second-largest economy.
In the United States, details in Friday’s employment report reflecting persistently strong wage growth underscored market pricing of a further rate hike later this month. The market though is coming to the realization that an end to the Fed’s cycle of rate hikes is at least near, even if once-expected cuts later in 2023 now seem unlikely.
The greenback fell as low as 141.565 yen , the lowest since June 21. It was last down 0.4% at 141.655. It slid nearly 1.3% on Friday.
The dollar index , which tracks the U.S. currency against a basket of major peers, was down 0.1% at 102.20 having fallen 0.87% on Friday after U.S. nonfarm payrolls increased 209,000 in June, missing market expectations for the first time in 15 months.
“I wonder if we’re moving toward a more negative dollar environment,” said Marc Chandler, chief market strategist, at Bannockburn Global Forex in New York.
“Since the end of June, U.S. interest rates have jumped: about 30 basis points on the 10-year, around 22 basis points on the two-year. And the dollar hasn’t really gotten much traction.”
The euro was last slightly up at $1.0969 after a 0.7% Friday jump.
Sterling fell 0.3% to $1.2792, having risen 0.79% the previous session to a 15-month high of $1.2850.
For markets focused on the outlook for central bank policy, particularly the Fed, attention now turns to U.S. inflation data due on Wednesday, where expectations are for core CPI to have risen 5% on an annual basis in June.
In other currencies, the Norwegian crown firmed against the dollar and euro following Norway’s inflation data. The dollar was last down 0.8% at 10.5390 , while the euro dropped 0.7% to 11.5666 .
In China, data on Monday showed factory-gate prices fell at the fastest pace in 7-1/2 years in June and consumer inflation was at its slowest since 2021, fuelling hopes for further support measures from Chinese authorities.
The U.S. dollar was last little changed versus the offshore yuan at 7.232.
The weak Chinese data dragged down the Australian and New Zealand dollars, which are often used as liquid proxies for the Chinese yuan.
The Aussie fell 0.6% to US$0.6654, while the New Zealand dollar slid 0.3% to US$0.6192.
Currency bid prices at 10:38AM (1438 GMT)
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