Dollar Held Firm on Monday as Focus Shifted to Jobs Data

The U.S. dollar held firm on Monday as investor focus shifted to the country’s labor market, following softer-than-expected inflation data last week. The inflation data failed to address concerns about the Federal Reserve’s monetary stimulus.

The dollar’s index versus six other main currencies rose 0.1% to 91.870. The index recovered from Friday’s low of 91.524.

The euro declined 0.1%  to $1.1923 as the euro struggled to recover the $1.20 level. Meanwhile, the dollar hovered at 110.67 yen, not far from Wednesday’s 15-month high of 110.105.

The U.S. personal consumption expenditures (PCE), excluding the volatile food as well as energy components, rose 0.5%, short of expectations for a 0.6% rise. However, the rise in core PCE to 3.4% year-on-year in May was the biggest jump since 1992. So, markets remain cautious if the Federal Reserve will normalize its policy earlier than expected.

Dollar and U.S. labor market

Signs of a tight labor market have also kept investors nervous about wage-driven price pressures. Among a number of economic indicators this week, Friday’s payroll data is a key focus, with economists expecting an increase of 675,000 jobs.

Depending on the outcome of payroll’s data, the market could start pricing in more chances of a rate hike in 2022. December 2022 Fed funds rates are almost fully pricing in a 0.25 percentage point rate hike by the end of 2022. Speculators reduced the value of bets against the dollar, or short bets, by the most in six months last week.

The general mood around an ongoing economy is also quite solid. Republican Senate negotiators on an infrastructure deal were optimistic regarding a $1.2 trillion bipartisan deal. President Joe Biden withdrew his threat to veto this bill unless a separate Democratic spending plan also passes Congress. His decision helped to improve the situation.

That has some reckoning on the dollar falling back into a downtrend if the U.S. jobs data passes without surprise. The latest non-farm payroll report will provide insight into how long it will take for the labor market to fully recover from the pandemic.

Elsewhere, cryptocurrencies hung on to a bounce from weekend lows. But cryptocurrencies were tracking towards a second consecutive monthly loss. Bitcoin last traded at $34,281, while ether traded at $1.093. Ether was not far from Tuesday’s three-month low of $1,700.

Last week, Britain’s financial regulator stated that Binance can’t conduct any regulated activity. The financial regulator issued a warning to consumers about the platform.