The dollar struggled to find its footing on Monday as markets took stock of dovish comments from Federal Reserve Chairman Jerome Powell and awaited a key employment report later in the week that could influence the outlook for U.S. interest rates.
Meanwhile, bitcoin was back in the spotlight as it climbed to the $40,000 level for the first time in more than a year.
Powell said on Friday that it was clear that U.S. monetary policy was slowing the economy as expected, with the benchmark overnight interest rate “well into restrictive territory.”
While Powell reiterated that the Fed stands ready to tighten policy further if deemed appropriate, traders were convinced that the rate-hike cycle was over.
Markets were pricing in a 60% chance of a rate cut by the March meeting, up from 21% a week ago, according to the CME’s FedWatch tool.
The U.S. dollar index, which tracks the currency against six major counterparts, was up slightly at 103.33 in Asian afternoon trading, but still not far from Friday’s close.
U.S. data remains the “primary driver” of G10 currencies, making non-farm payrolls the “key risk event” this week, said Kyle Rodda, senior financial market analyst. The closely watched November jobs report will be released on Friday.
“What we are seeing is the pricing out of US economic exceptionalism, compounded by the unwinding of stretched long positioning in the US dollar.”
That means dollar pairs could continue to get a boost depending on U.S. economic data, Rodda said.
Against the yen, the greenback clawed its way back up to 146.80 yen after falling as low as 146.24 earlier in the session.
That was the Japanese currency’s highest level against the greenback since Sept. 11, and well above the near 33-year low of 151.92 per dollar hit in mid-November.
The Australian dollar rose to a fresh four-month high against the greenback of $0.669 before easing to $0.6655 in Asian afternoon trading.
The Kiwi fell more than 0.2% to $0.61940, after hitting $0.6222, its strongest level since late July.
The British pound, meanwhile, continued to retreat from last week’s three-month high of $1.2733 against the greenback, hovering around $1.26745.
Currency markets could also be influenced this week by speeches from several European Central Bank (ECB) officials ahead of a slew of economic data from the region, including a speech by ECB President Christine Lagarde later on Monday.
“Lagarde will certainly welcome last week’s eurozone CPI report, but I doubt she will entertain the idea of ECB rate cuts just yet,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY), adding that the eurozone labor market remains tight.
The euro fell as low as $1.0829 last week after data showed euro zone inflation fell to 2.4% in November, fueling bets that the ECB will cut rates faster than the bank has suggested.
The euro was down 0.13% at $1.08685 on Monday.
Elsewhere in cryptocurrencies, bitcoin touched $40,000 for the first time in nearly a year and a half on bets that U.S. regulators will soon approve exchange-traded bitcoin funds. It last traded at $41,425, its highest level since April 2022.
