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Dollar softer as markets await this week’s US data

NEW YORK - The dollar weakened on Monday, as investors grew wary ahead of a plethora of U.S. economic data that could provide clues about the direction of future Federal Reserve monetary policy.

The yen also was broadly weaker as investors ratcheted down expectations for rate hikes by the Bank of Japan following soft Japanese inflation data last week.

“The dollar is lower today but it continues to trade within well-established ranges,” said Alex Beuzelin, senior market analyst at Ruesch International in Washington.

“Traders are marking time ahead of this week’s heavy batch of key U.S. economic reports...that would give us greater insight into the Federal Reserve outlook,” he added.

The Fed is expected to keep interest rates unchanged again next month and investors are eager to get any clues about the Fed’s policy movements beyond its Sept. 20 decision.

Early morning in New York, the euro was up 0.4 percent at $1.2803, but this was more than a cent below recent two-month highs of $1.2939. Traders expect the single euro zone currency to trade between $1.2850, a key level that markets failed to get through on several occasions last week, and $1.2720.

Markets are looking to this week’s August U.S. payrolls report on Friday, as well as indications of growth in the personal consumption expenditures price index for July, to be released on Thursday.

Investors will also scrutinize the minutes of the Fed’s Aug. 8 policy meeting for insight into why it left its funds rate at 5.25 percent at that meeting after boosting it 17 successive times in two years to June.

The euro also hit a record peak against the yen just below 150, as a smaller-than-expected rise in Japan’s consumer price index (CPI) in July and downward revisions to previous months strengthened the view that Japanese interest rates will climb only gradually.

“Short-term Japanese yields have fallen a whopping 16 basis points since the (CPI) release, representing a significant reduction in the pace of BoJ (Bank of Japan) tightening anticipated by the market,” said HSBC Bank USA in a note.

“Whereas the market previously saw some risk for two 25 basis points BoJ rate hikes before year-end, the drop in yields suggests only one rate hike is likely over that time,” HSBC added.

Sterling also rose against the yen to 222.15 yen, its highest level since Oct 1998. The yen, however, slightly firmed against the dollar to 117.10 yen, but that was more due to the greenback’s broad weakness.

The Swiss franc hit the day’s highs against the dollar and the euro after Swiss National Bank Chairman Jean-Pierre Roth said the central bank would continue its path of rate hikes as the Swiss economy is set to keep growing strongly and the franc’s recent weakness against the euro loosens monetary conditions.

The dollar fell 0.5 percent to 1.2338 Swiss francs and the euro was down slightly at 1.5794 francs.

Roth also said economic fundamentals meant the franc would continue to be solid against major currencies.