The dollar started Monday on the front foot, with a reading on U.S. inflation and the Federal Reserve's last policy meeting for the year likely to set the tone for the week, while rising deflationary pressure in China weighed on the yuan.
The greenback pushed back above 145 yen and last bought 145.62 yen, reversing some of its steep fall against the Japanese currency late last week, as bets grew that the Bank of Japan's ultra-low interest rates policy may be nearing an end.
Sterling dipped 0.04% to $1.25425 and was huddled near Friday's two-week low of $1.2504.
Data on Friday showed U.S. job growth accelerated in November while the unemployment rate fell to 3.7%, underscoring the resilience of the labour market in the world's largest economy and challenging expectations of imminent rate cuts from the Fed beginning early next year.
"They were a good set of numbers," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia (OTC:CMWAY) (CBA).
"Wages were still running probably too hot for the Fed to be comfortable and the unemployment rate fell - that was a really big surprise."
The figures caused traders to push back expectations of how soon the Fed could begin cutting rates, with many now leaning toward May instead of March.
The euro rose 0.07% to $1.0768 but stood not too far from Friday's more than three-week low of $1.07235, while the dollar index edged 0.07% higher to 104.03.
The index gained more than 0.7% last week, reversing three weeks of loss.
Focus now turns to U.S. inflation data due on Tuesday, where expectations are for consumer prices to continue easing on an annual basis, followed by the Federal Open Market Committee (FOMC) policy decision due on Wednesday after a two-day meeting.
"The big influence on the U.S. dollar this week is going to be the FOMC meeting, in particular Chair (Jerome) Powell's comments at his press conference," said CBA's Capurso.
"If he's (hawkish), I think markets will probably ignore him and the U.S. dollar remains steady. But if he's dovish, then I think the U.S. dollar and bond yields will fall, so it's an asymmetric reaction."
CHINA STRUGGLES
In Asia, data over the weekend showed China's consumer prices fell at the fastest pace in three years in November while factory-gate deflation deepened, indicating increasing deflationary pressure as weak domestic demand casts doubt over the country's economic recovery.
The yuan weakened to a three-week low in both the onshore and offshore markets on Monday, with the former last at 7.1833 per dollar.
"It is important to note that the main drag to China's headline inflation remains food prices. Nonetheless, the lack of a strong revival in the economy suggests that weak inflation will persist, and more policy support is indeed required," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
The latest numbers from China add to recent mixed trade data and manufacturing surveys that have kept alive calls for further policy support to shore up growth.
The Australian dollar, often used as a liquid proxy for the yuan, fell 0.17% to $0.6566, while the New Zealand dollar slipped 0.1% to $0.6115.
Source : Economy News by Reuters / Dec 11, 2023