Dollar hits two-week high against euro as US payrolls data looms

By Kevin Buckland

TOKYO (Reuters) – The dollar climbed to a two-week high against the euro on Monday as traders trimmed bets on aggressive policy easing by the Federal Reserve, now turning their attention to a crucial jobs report from USA later this week.

The dollar advanced to its strongest since Aug. 21 against the yen, supported by a rise in long-term Treasury yields to their highest since mid-August after a close gauge of U.S. inflation held steady, reducing the imperative that the Fed to reduce super-sized interest rates by 50 basis points (bps) on 18 September.

It rose 0.27 percent to 146.60 yen and was last at 146.29.

The dollar index against major peers rose to 101.79 at the start of the Asian day, a level last seen on August 20.

The euro fell slightly to $1.0430, its lowest level since August 19.

Traders currently have a 33% chance of a 50-basis-point Fed rate cut this month, compared to a 67% chance of a quarter-point cut. A week earlier, expectations were 36% for the bigger discount.

A US public holiday on Monday means a potentially slow start to the week for the dollar, analysts said, but the rest of the day sees a steady stream of macroeconomic data culminating in non-farm payrolls on Friday.

Economists polled by Reuters expected 165,000 jobs to be added in August, up from an increase of 114,000 the previous month, and that the unemployment rate fell to 4.2 percent.

“If the U.S. economy adds 150,000 jobs or more and the unemployment rate falls to 4.2 percent or less, it would increase confidence that the economy is on target for a soft landing,” cementing expectations for a rate cut of 25 basis points this month, it said. IG analyst Tony Sycamore.

However, Sycamore believes the dollar’s recent strength against the yen is unlikely to last.

“The pair should see a sustained break above the 152.00 resistance to negate downside risks,” he said.

However, for the euro, the prospects for both the Fed and the European Central Bank to ease this month mean it’s “difficult to make a strong case for or against EUR/USD,” Sycamore added.

Treasuries will not trade on Monday due to the US holiday, but the 10-year yield was at 3.9110% after rising 4.4bps on Friday.

Sterling was steady at $1.3129, holding close to Friday’s low of $1.31095, the weakest since August 23.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam)