By Kevin Buckland
TOKYO (Reuters) – The dollar climbed to a two-week high against the euro on Monday as traders shed bets on aggressive policy easing by the Federal Reserve, with focus now shifting to a crucial U.S. jobs report late this week.
The dollar rose against the yen to its strongest since August 21, supported by a rise in long-term Treasury yields to their highest level since mid-August, after a closely watched measure of US inflation remained stable , reducing the need for the Fed to cut spending. interest rates by as much as 50 basis points (bps) on September 18.
It rose as much as 0.27% to 146.60 yen and was last at 146.29.
The benchmark against major peers rose to 101.79 early in the Asian day, a level last seen on August 20.
The euro fell slightly to $1.10430, the lowest level since August 19.
Traders currently estimate a 33% chance of a 50 bp Fed rate cut this month, versus a 67% chance of a quarter-point cut. A week earlier, expectations for the larger reduction were still 36%.
A US holiday on Monday makes for a potentially slow start to the week for the dollar, analysts said, but the rest of the days will see a steady stream of macroeconomic data culminating in non-farm payrolls on Friday.
Economists polled by Reuters expect 165,000 jobs will be added in August, up from a rise of 114,000 in the previous month, and the unemployment rate will fall to 4.2%.
“If the U.S. economy were to add 150,000 jobs or more and the unemployment rate fell to 4.2% or lower, it would increase confidence that the economy is on track for a soft landing,” according to expectations for a 25 basis point rate cut this month. IG analyst Tony Sycamore.
However, Sycamore believes that the dollar’s recent strength against the yen, for example, is unlikely to last.
“The pair should see a sustained break above resistance at 152.00 to offset downside risks,” he said.
For the euro, however, the easing outlook for both the Fed and the European Central Bank this month means it is “difficult to make a strong case for or against the euro,” Sycamore added.
Government bonds will not trade on Monday due to the US holiday, but the 10-year yield was at 3.9110% after rising 4.4 bps on Friday.
Sterling was flat at $1.3129 and remained close to Friday’s low of $1.31095, the weakest since August 23.
(This story has been corrected to fix the exchange rate from $1.10430 to $1.10430, in paragraph 5)
