Dollar gets little lift from boost in Fed hike expectations

The dollar faced a lackluster start to trading in Asia on Monday, with US markets closed for the holiday. Despite a surge in expectations for a Federal Reserve rate hike following strong US jobs data on Friday, the greenback struggled to maintain the gains. Middle East tensions and concerns over rising US debt and policy uncertainty further pressured the dollar.

Earlier, the euro had edged up marginally at US$1.1618, while the British pound remained steady at US$1.3519. The dollar's value dropped 0.07% to 99.09, near its recent lowest point of 98.558. Traders now estimate a 57% probability of a September interest rate hike, contingent on Friday's inflation data. If inflation figures are less robust, a pause in rate hikes could become more likely, potentially weakening the US dollar, according to Elias Haddad, global head of markets strategy at BBH.

The European Central Bank is expected to raise rates to 2.75% on Thursday, while the Federal Reserve is projected to hike rates to 3.0% by December. The Bank of Japan is also expected to increase rates by a quarter point on September 18, with a 60% chance of further hikes by December. The Japanese yen gained over 0.2% to 155.88 per dollar, driven by projections of a BOJ rate hike and capital repatriation.

Eric Robertsen, global head of research and chief strategist at Standard Chartered, cautioned that persistent yen appreciation could signal a shift in asset allocation as rising interest rates impact investment strategies. Other currencies performed mixed, with the Australian dollar up 0.12% to US$0.7208 and the New Zealand dollar remaining unchanged at US$0.5880.

Bitcoin stabilized above US$80,000 at US$80,145.95, supported by a broader diversification away from the dollar.