Dollar Steady on Payroll Gains, Euro Eases on Weak Data

The U.S. dollar stabilized on Monday, holding onto gains from Friday’s strong jobs report, ahead of key inflation data and minutes from the Federal Reserve’s latest meeting.

The growth in U.S. payrolls eased fears of a slowdown in the U.S. economy and reinforced the idea that the Federal Reserve will not need to cut interest rates sharply, boosting the dollar. According to the FedWatch tool, traders largely dismissed bets on a 50 basis point cut at the next Fed meeting and estimated a 25 basis point cut with over 90% certainty.

This week, the focus will be on speeches from several Fed officials, inflation data, and the minutes of the September meeting. The Fed cut rates by 50 basis points at the meeting and signaled the beginning of an easing cycle, though it emphasized that future rate cuts will be data-dependent.

Analysts at ING noted that “Friday’s extraordinary U.S. jobs report triggered the kind of repricing of rate expectations that we thought would materialize in a few weeks.” Markets are now aligned with the Dot Plot projections, expecting 25bp cuts in November and December. The dollar has also benefited from safe-haven demand amid turmoil in the Middle East, with Israel carrying out bombing raids against Hezbollah targets in Lebanon and the Gaza Strip on Sunday, ahead of the one-year anniversary of the October 7 attacks.

In Europe, EUR/USD was down 0.1% at 1.0965 as the euro weakened after German factory orders fell by about 5.8% in August, highlighting the economic difficulties facing the largest economy in the eurozone. ECB chief economist Philip Lane, along with board members Piero Cipollone and Jose Luis Escriva, are scheduled to speak later on Monday and are likely to follow President Christine Lagarde in signaling a rapid pace of additional easing.

GBP/USD retreated slightly to 1.3113 after suffering a 1.9% drop the previous week, posting its biggest decline since early 2023. Bank of England chief economist Huw Pill said on Friday that the central bank should only gradually cut interest rates, a day after Governor Andrew Bailey indicated he may move more aggressively to reduce borrowing costs.

USD/JPY fell 0.3% to 148.22, retreating after hitting its highest level since mid-August. The yen was hit by growing doubts about the Bank of Japan’s ability to continue raising interest rates in the coming months, especially amid uncertainty about the upcoming Japanese general election.

USD/CNY was virtually flat at 7.0176, with Chinese markets still closed for the Golden Week celebrations.