Dollar Wallowing Near 3-Week Loss Over Less Aggressive Fed

On Monday, the US dollar dropped to its lowest value against the Japanese yen, with investors weighing the possibility of the Fed being less aggressive in rate hikes due to the economic environment.

Focus on data

There was volatility in the US dollar index after data showed that there had been a less-than-expected slowdown in the US manufacturing activity in July.

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However, the major report for traders this week would be the US jobs data from the Labor Department, which is scheduled to release on Friday.

Market analysts said that the beginning of the new month is focused on the possibility of the US Federal Reserve slowing down its pace of interest rate hikes.

The jobs data on Friday will remain the focus because it is expected to confirm that the improvement in the labor market is slowing down.

So far, the US dollar index has climbed by 10% this year, thanks to expectations of investors about an aggressive hike in the interest rates by the US Fed.

Last week movements

The US Federal Reserve raised its interest rates last week by 75 basis points yet again after it had done the same in the previous month.

There had also been small moves back in May and March, all of which were aimed at helping the central bank get a handle on inflation.

The greenback had also declined against the Japanese yen last week and there was also a fall in the 2-year US Treasury yields after data showed that a second consecutive quarterly decline in the GDP.

New week

The US dollar had fallen on Monday to its lowest level against the yen, which had not been seen since mid-June.

Last month, the currency hit a peak of 140 yen, which was a peak seen in 1998. There was a 1.2% decline in the dollar for the day, which saw it trading at 131.65.

As for the dollar index, it reported losses of 0.6%. The euro buoyed due to the broad weakness in the euro, as it rose 0.3% to reach $1.0260.

Currency investors were also focused on the visit of US House Speaker, Nancy Pelosi, to the self-ruled island of Taiwan.

The warnings from China about the repercussions of the visit saw investors turn towards safe-haven assets, which allowed the Japanese yen to record yet another day of gains against the dollar.

However, the United States said that Chinese threats would not intimidate the country, and Pelosi was expected to visit as per schedule.

But, this did not help the US dollar for the most part, as the greenback continued to struggle against the yen as well as other currencies. There was a 0.5% rise in the Australian dollar, as it reached $0.7027.

If the US Federal Reserve does take its feet off the pedal in terms of aggressive rate hiking, this could see the US dollar lose some support, as it has strengthened significantly due to the interest rate environment.

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