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The US dollar rose in early holiday-affected European trade Monday, kicking off a week that features policy-setting meetings from the Federal Reserve and the European Central Bank, as well as the monthly US employment report.
The dollar index, which measures the value of the US currency against a basket of six other currencies, was 0.2% higher at 101.570 at 06:05 GMT.
The conclusion of the next Federal Open Market Committee meeting is projected to raise the benchmark lending rate goal by another 25 basis points on Wednesday, marking the 10th straight hike dating back to March of last year.
However, the Fed’s tightening cycle may be coming to an end, as last week’s first-quarter growth figures indicated a rapidly slowing economy.
Furthermore, at the end of the week, the monthly U.S. jobs report will be released, which is expected to show that the economy added 180,000 jobs. While this is still a good number, it would be the third consecutive month of slowing job growth.
With the European Central Bank and the Bank of England expected to be more aggressive than the Fed in the coming months, speculators increased their net bearish position on the dollar against major peers to the highest level since June 2021, according to data from the Commodity Futures Trading Commission late last week.
Tuesday’s data on euro zone consumer price inflation could be the deciding factor, with underlying price pressures likely to remain uncomfortably high, pointing towards a rate hike of 50 basis points.
However, if bank lending data shows credit conditions have tightened substantially, the case for a smaller rate hike would be bolstered.
EUR/USD fell 0.1% to 1.1006, with activity likely to be limited given the majority of Europe is enjoying the Labor Day holiday.
GBP/USD fell 0.2% to 1.2553, in a quiet week in the U.K., with officials entering a blackout period before their decision on May 11.
AUD/USD rose 0.4% to 0.6635, USD/JPY rose 0.5% to 136.94, while USD/CNY traded largely flat at 6.9121.
