US dollar steadies after payrolls drop, yen falls

The US dollar steadied near a two-month low on Monday (Aug 10) after Friday's disappointing jobs data, as investors awaited this week's inflation figures for further insight into the Federal Reserve's monetary policy direction. The July jobs report revealed an unexpected job loss in the United States, with revisions to the prior two months' employment figures showing significantly less job growth. This negative labor market data further supported expectations for a potential rate hike delay from the Fed.

FX strategist Francesco Pesole from ING commented, "The labor market data was a negative event for the dollar." He anticipated that the bias would remain negative this week, but a significant gap in the Consumer Price Index (CPI) report could shift market sentiment towards expecting a rate hike. Futures markets have reduced the likelihood of a September rate hike to around 48 percent, down from 67 percent a week earlier.

The core CPI is expected to increase by 0.2 percent month-over-month in July, while the annual rate is projected to ease to 2.5 percent from 2.6 percent in June. Producer price data will be released on Thursday, and retail sales figures on Friday will provide additional clarity on inflation expectations. Meanwhile, the euro remained relatively stable at US$1.1555, close to its strongest level since mid-June, while the British pound hovered at US$1.3501, just below its three-and-a-half-week peak achieved on Friday.

The Japanese yen depreciated by 0.6 percent to a low of 158.89 against the US dollar and appeared poised to record its largest daily decline against the currency in almost five months. The yen has softened some of its recent intervention-driven gains but is still far from the multi-decade low of around 164 reached late last month.

Speculators reduced their bearish bets on the Japanese yen to the lowest level in over 12 years, according to data from the Commodity Futures Trading Commission (CFTC). The net short position in the yen fell by US$8.865 billion to US$3.604 billion in the week ending Aug 4, the largest weekly decline since March 2014.

The dollar index, which gauges the currency's performance against six major peers, remained unchanged at 99.70, following its lowest level since June 15 on Friday. Speculators boosted their net long position in the dollar to the highest level since December 2022, as reported by the CFTC. Investors are still monitoring discussions aimed at reopening the Strait of Hormuz and assessing its potential impact on energy prices.

Oil prices increased on Monday, with Brent crude futures rising over 1.5 percent to around US$85 per barrel due to ongoing uncertainty surrounding the Strait's reopening.

Iran announced that a deal with Oman to define new shipping lanes was nearing completion, but emphasized that the United States must still fulfill other conditions, adding complexity to the energy supply outlook. The Australian dollar experienced a slight decline to US$0.7065 before the Reserve Bank of Australia's interest rate decision on Tuesday, with expectations that the central bank would maintain its key rate at 4.35 percent for the remainder of the year.

Lastly, the Chinese yuan steadied near its strongest level in three-and-a-half years, at 6.7442, following data indicating a slowdown in China's producer price inflation last month.