Dollar steady ahead of ISM release, key labor market data By Investing.com

Investing.com – The U.S. dollar steadied on Tuesday as investors looked forward to the release of key economic data, including Friday’s U.S. payrolls, which could bolster an interest rate cut by the Federal Reserve later this month.

At 04:05 ET (09:05 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 101.617, just below Monday’s two-week high of 101.79.

The index fell 2.2 percent in August on expectations of a U.S. interest rate cut.

Dollar focuses on the labor market

The US later in the session is the first major indicator of a big week for US data and is expected to show that the country’s manufacturing sector remains in contraction territory.

However, it is the labor market that will be in the spotlight this week as Fed policymakers look for confirmation that it is time to start easing monetary policy, particularly after Fed Chairman Jerome Powell last month approved a imminent start of interest rate cuts in a nod to labor market worries.

Friday’s key announcement will be the key number of the week, in particular, and the previous month’s jobs report came in below expectations, prompting a sharp sell-off in equity markets on recession fears.

Before that, Wednesday’s data and Thursday’s report will be the focus.

Markets are pricing in a 69% chance of a 25 basis point cut when the Fed meets on Sept. 17-18, with a 31% chance of a 50bps cut, CME’s FedWatch tool showed.

Euro is nearing a two-week low

In Europe, it traded 0.1% lower at 1.1061, not far from the two-week low of 1.1042 hit in the previous session, after data showed manufacturing activity in the euro zone remained on contraction territory in August.

Interest rates cut in June and look set to do so again later this month, especially after falling to 2.2% in August, a more than three-year low.

Traders are also looking at the uncertain political situation in Germany after the Alternative for Germany became the first far-right party to win German state elections since World War II.

“Investors appear to have been quickly reassured about the political situation after all other German parties appeared determined to keep the far-right AfD out of power following their Thuringia victory,” analysts at ING said in a note.

“At the same time, the ruling coalition looks increasingly weak and we cannot rule out some damage to the euro from EU policy going forward. Especially when you add in a likely turbulent EU budget season this autumn.”

down 0.2% to 1.3129, UK data calendar very quiet this week.

Sterling had a strong August and gained more than 2% over the past month, boosted by expectations that the Bank of England will keep interest rates higher than in the United States and the eurozone.

Yen returns

In Asia, it fell 0.6 percent to 146.03, down from a two-week high of 147.16 hit on Monday, after data showed factory activity in Japan contracted again in August, it showed a private sector survey earlier this month.

traded mostly flat at 7.1161, while falling 0.6% to 0.6750 ahead of the Australian report due on Wednesday.