Dollar edges lower, traders focus on data for Fed clues

Dollar edges lower, traders focus on data for Fed clues

By Karen Brettell

NEW YORK (Reuters) – The dollar dipped against the euro and yen on Monday as investors continued to digest last week’s mixed U.S. economic data and looked ahead to a key inflation reading for fresh clues on when the Federal Reserve is likely to begin cutting interest rates.

The greenback initially bounced on Friday after data showed that employers hired 216,000 workers in December, above economists’ expectations, while average hourly earnings rose 0.4% in the month.

The U.S. currency then dropped, however, as investors focused on some underlying factors in the jobs report that showed less strength. It declined further after a separate report showed that the U.S. services sector slowed considerably in December, with a measure of employment dropping to the lowest level in nearly 3-1/2 years.

“Friday’s nonfarm payroll data was kind of a mixed bag. The headline number was definitely quite high and good, but there were a lot of subsets to that data point that showed some larger weakness in the labor market as well,” said Helen Given, FX trader, at Monex USA in Washington.

“There are definitely cracks slowing down the pace of labor hiring in the U.S. and the labor market is definitely loosening,” she added.

This week’s major economic release will be Thursday’s consumer price inflation data for December. It is expected to show that headline inflation rose 0.2% in the month, for a 3.2% annual gain.

Fed funds futures traders are pricing in Fed rate cuts beginning in March, though the odds of a move that soon have fallen. Traders now see a 66% chance of a March rate reduction, down from 89% a week ago, according to the CME Group’s FedWatch Tool.

The dollar index was last down 0.21% at 102.24, after gaining 1% last week, the most in six months.

The index hit a five-month low of 100.61 on Dec. 28. But with other major central banks including the European Central Bank and Bank of England also expected to cut rates this year, some analysts see significant further weakness in the U.S. currency as unlikely this year.

The euro rose 0.21% to $1.09635. The greenback fell 0.37% to 144.08 Japanese yen.

The Bank of Japan is expected to be a outlier this year by lifting rates out of negative territory, though interest rates in the country are likely to remain below global peers.

The timing of any hike may also be pushed back after Japan last week suffered a 7.6 magnitude earthquake in the western Noto peninsula.

“The earthquake aftermath can push back speculation of a BoJ policy tweak later this month,” John Briggs, Global Head of Economics & Markets Strategy at NatWest Markets noted in a report on Monday.

In cryptocurrencies, bitcoin rose 2.12% to $44,874.

(Reporting By Karen Brettell; Additional reporting by Alun John in London; Editing by Kirsten Donovan)