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The U.S. dollar edged lower on Monday as investors positioned for a data-heavy week that could shape expectations for Federal Reserve policy, while the Japanese yen strengthened on renewed speculation of currency intervention following Japan’s recent election outcome.
At 06:30 ET (11:30 GMT), the Dollar Index—which measures the greenback against a basket of six major currencies—fell 0.3% to 97.220, retreating after posting gains last week.
Dollar eases ahead of critical data releases
The dollar started the week on a softer footing as markets looked ahead to a series of high-impact U.S. economic reports, including retail sales, inflation figures, and the closely watched delayed jobs report.
Attention is expected to center on Wednesday’s release of the January nonfarm payrolls data, along with benchmark revisions that could alter perceptions of labor market strength. While the Federal Reserve’s next policy meeting is scheduled for March, Fed funds futures currently imply only about a 15% chance of a 25-basis-point rate cut at that gathering.
Expectations for easing rise sharply for June, which would mark the first Fed meeting chaired by Kevin Warsh, should his nomination by U.S. President Donald Trump be confirmed. Adding to pressure on the dollar, a Bloomberg report suggested that Chinese regulators have advised domestic financial institutions to scale back their exposure to U.S. Treasuries.
Euro advances, sterling capped by political uncertainty
In Europe, the euro benefited from the softer dollar and broader sentiment. EUR/USD rose 0.4% to 1.1860, drawing support in part from the Bloomberg report regarding China’s Treasury holdings.
Sterling, however, failed to capitalize on the dollar’s weakness. GBP/USD traded largely flat at 1.3611, weighed down by political developments in the UK. Pressure on Prime Minister Keir Starmer intensified after his chief of staff resigned on Sunday, taking responsibility for advising the appointment of Peter Mandelson as ambassador to the U.S. despite his controversial past associations.
Yen firms on renewed intervention talk
In Asia, the Japanese yen outperformed, with USD/JPY slipping 0.3% to 156.69 after earlier declines of up to 0.5%. The yen, which remains near historically weak levels against the dollar, was supported by renewed warnings from Japanese officials signaling a readiness to intervene in currency markets.
Finance Minister Satsuki Katayama said authorities were in close coordination with the U.S. Treasury regarding potential joint action, providing temporary relief for the yen. The currency has come under renewed pressure following Prime Minister Sanae Takaichi’s sweeping election victory on Sunday, which granted her ruling coalition a supermajority in the lower house and cleared the way for expansive fiscal spending plans.
Asia-Pacific currencies mixed
Elsewhere, USD/CNY slipped 0.2% to 6.9242, hovering near levels last seen in mid-2023. The yuan has strengthened notably in recent months amid firm support from the People’s Bank of China, which has continued to set relatively strong daily fixings. Investors are now looking ahead to Chinese CPI data due on Friday for further insight into the world’s second-largest economy, ahead of the Lunar New Year holidays.
The Australian dollar edged higher, with AUD/USD rising 0.1% to 0.7020, reclaiming the 0.70 level. The move reflected growing expectations of further interest rate hikes by the Reserve Bank of Australia this year, after the central bank raised rates by 25 basis points last week and struck a hawkish tone amid persistently high inflation.
As the week unfolds, currency markets are likely to remain sensitive to incoming data, central bank signals, and political developments across major economies.
