Dollar gains, yen weakens as markets eye US CPI

The U.S. dollar surged on Monday as oil prices rose ahead of the closely watched July consumer price inflation report, following a weaker-than-expected jobs report on Friday that raised doubts about a near-term Federal Reserve rate hike. Fed funds futures traders now price in a 52 percent chance of a September hike, down from 67 percent a week ago.

Analysts attribute the lower odds to slowing job growth and easing oil prices. Adam Button, chief currency analyst at investingLive, noted that September had become increasingly likely, but the poor jobs report and revisions worsened the outlook. The upcoming consumer price index data on Wednesday could shift expectations again if it indicates a reacceleration in price pressures.

Producer price data on Thursday and retail sales figures on Friday will provide further insights into inflation's trajectory. Experts at TD Securities expect the USD to remain supported against G10 currencies until soft inflation data removes the likelihood of near-term Fed rate hikes. Oil prices eased from recent peaks due to hopes of resolving the Iran conflict, although volatility remains high.

The dollar index rose 0.20 percent to 99.80, with the euro falling 0.13 percent at $1.1542. The Japanese yen weakened 0.84 percent to 159.14 per dollar, marking its steepest daily decline against the greenback in nearly five months. Speculators reduced their bearish bets on the yen by the most in over 12 years, while increasing their net long position in the dollar to the highest level since December 2022.