U.S. Dollar Holds Steady as Traders Await Inflation Data, Fed Minutes

The U.S. dollar stabilized on Monday, retaining the gains made after Friday’s robust jobs report, as traders gear up for a week filled with key inflation data and the release of the Federal Reserve’s latest meeting minutes.

At 04:00 ET (08:00 GMT), the Dollar Index, which measures the greenback against six other currencies, edged slightly lower to 102.247. On Friday, it surged 0.5% to a seven-week high, marking a weekly gain of more than 2%—its biggest jump in two years.

Payrolls Boost U.S. Dollar
The strong U.S. payrolls report eased concerns about an economic slowdown and suggested that the Federal Reserve may not need to cut interest rates as aggressively to support the economy. This fueled demand for the dollar.

Traders have largely abandoned bets on another 50 basis point cut at the Fed’s next meeting, with the CME Fedwatch tool showing over a 90% probability of a smaller 25 bps cut.

This week, the focus will be on speeches by several Fed officials, fresh inflation data, and the minutes from the Fed’s September meeting, where rates were cut by 50 bps and the central bank signaled more cuts would depend on incoming economic data.

Middle East Conflict Boosts Safe-Haven Demand
The dollar also benefited from heightened safe-haven demand amid ongoing tensions in the Middle East. On Sunday, Israel bombed Hezbollah targets in Lebanon and the Gaza Strip, adding to geopolitical concerns as Monday marks the one-year anniversary of the Oct. 7 attacks that ignited Israel’s war.

Weak German Data Weighs on the Euro
In Europe, the EUR/USD slipped 0.1% to 1.0965 after a disappointing German factory orders report, which showed a 5.8% decline in August. This further underscored the economic challenges facing the eurozone’s largest economy.

Later in the session, eurozone retail sales for August will be released, offering more insight into consumer spending trends. Meanwhile, speeches from ECB chief economist Philip Lane and board members Piero Cipollone and Jose Luis Escriva are expected, following President Christine Lagarde’s recent remarks supporting a cautious easing pace.

Pound Struggles After Steep Weekly Drop
The GBP/USD pair slid slightly to 1.3113 after falling 1.9% last week, its largest decline since early 2023. This came after Bank of England Chief Economist Huw Pill stated that the central bank should cut interest rates only gradually, echoing Governor Andrew Bailey’s previous comments on the potential for more aggressive rate cuts.

Yen Falters Amid Doubts Over BoJ Policy
The USD/JPY fell 0.3% to 148.22, reversing earlier gains after the yen dropped to its weakest level since mid-August. Doubts are growing over the Bank of Japan’s ability to continue raising rates, especially with uncertainty surrounding the upcoming Japanese general elections.

Meanwhile, the USD/CNY pair remained stable at 7.0176, with Chinese markets closed for Golden Week celebrations.