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Source: Newsmaker.id
The US dollar weakened during Monday's trading (Sept 7), with the Dollar Index falling approximately 0.23% to the 98.92 level. This decline occurred despite strong US labor data from the previous week, which had raised the likelihood of a Federal Reserve interest rate hike in September. Instead, the market opted to reduce dollar positions ahead of the release of US inflation data, which will serve as a crucial indicator for the future direction of monetary policy.
Pressure on the greenback intensified following a sharp surge in the Japanese yen. The USD/JPY pair fell by about 1.1% to 154.52—down from the previous close of 156.25—and briefly touched 154.06. The yen's appreciation pushed the Japanese currency to its strongest level in roughly seven months, driven by growing expectations that the Bank of Japan (BOJ) might raise interest rates at its September 18 meeting.
The prospect of a BOJ rate hike is shifting the divergence in monetary policy expectations between Japan and the United States. Investors are buying the yen more aggressively, anticipating a potential 25-basis-point rate hike by the BOJ this month, whereas the Federal Reserve's path remains contingent on inflation trends. These conditions have hindered the dollar from fully capitalizing on the stronger-than-expected US labor report.
Dollar weakness also coincided with relatively thin liquidity, as US markets were closed for the Labor Day holiday. Lower trading volumes can amplify short-term volatility, particularly as markets adjust positions ahead of a series of central bank decisions and key economic data releases.
Beyond the yen, several other major currencies also strengthened against the dollar. The euro gained ground ahead of this week's European Central Bank (ECB) meeting, with markets anticipating another rate hike. The combination of tightening expectations for both the BOJ and the ECB has broadened the pressure on the dollar across foreign exchange markets.
Investor focus has now shifted to US inflation data. The US Consumer Price Index (CPI) release on Friday is expected to be a key determinant of expectations regarding the Federal Reserve's September 15–16 meeting. The market currently assigns a roughly 57% probability to an interest rate hike, yet softer inflation figures could weigh on the dollar again, even as the labor market remains robust.
Newsmaker Analysis: The dollar is currently in a rather fragile position. While strong labor data supports the likelihood of a Federal Reserve rate hike, this factor has not been sufficient to push the Dollar Index back above the 99 level, as the market is also contending with policy tightening by the BOJ and ECB. As long as the dollar index remains below 99, downward pressure will likely prevail. A resurgence in US CPI could trigger a rebound for the greenback, whereas lower inflation data could potentially prolong the dollar's weakness and drive the USD/JPY pair lower. (arl)
Source: Newsmaker.id