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Dollar tumbles, pulling gains from Friday jobs data

  • The dollar falls; Aussie, Kiwi and British Pound gain
  • Traders price within 69% chance of 75 basis point Fed hike in September

LONDON, Aug 8 (Reuters) – The dollar fell on Monday, shedding some of the gains it made on Friday’s U.S. jobs data, as currency markets retreated on their initial reaction .

Stronger-than-expected US jobs numbers last week saw the dollar strengthen against its major peers. The data was taken by traders as an indication that the US Federal Reserve may raise interest rates more aggressively to fight inflation. Read more

But that move cooled early in European trade on Monday, with the dollar index slipping to 106.25 at 0750 GMT, down 0.4% on the day, from Friday’s 10-day high at 106.930.

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According to data from Refinitiv, traders were pricing in a roughly 69% chance of the Fed raising rates by 75 basis points at its September meeting.

Fed Governor Michelle Bowman said on Saturday that the Fed should consider further 75 basis point hikes in upcoming meetings to bring inflation down. Read more

“The US dollar was supported by a combination of stronger US economic data releases and hawkish comments from regional Fed chairs that encouraged market participants to push back expectations of a dovish Fed policy pivot,” wrote MUFG currency analysts Derek Halpenny and Lee Hardman. in a note to customers.

“We believe there is room for the US Dollar to rebound further in the near term, and have recommended a new long USD/CAD trade idea to reflect our bullish outlook for the US Dollar.”

Markets are now awaiting U.S. inflation data on Wednesday to provide further clues about the health of the world’s largest economy. Analysts polled by Reuters expect annual inflation to have eased to 8.7% in July from 9.1% previously.

RBC analysts said in a client note that the market had reached a balance between “inflation” and “slower growth” as investment themes, and that they would wait for more data releases before deciding on the next market direction.

The Australian dollar rallied after Friday’s losses. As of 0751 GMT, it was up 0.9% on the day at $0.697.

The New Zealand dollar rose 0.4% to $0.627.

The dollar fell against the yen, with the pair changing hands at 134.945.

Eurozone bond yields eased back after gaining on Friday’s jobs data. Italian bonds appear to have brushed aside Moody’s decision to downgrade Italy’s rating outlook.

The euro rose 0.2% to $1.02095.

“If calm summer markets spark renewed interest in carry trading, the euro is likely to be one of the preferred funding currencies,” ING FX analyst Chris Turner said in a client note.

The pound rose 0.4% to $1.2118.

Foreign Secretary Liz Truss – who is expected to replace Boris Johnson as prime minister next month – has said she plans to carry out a review of the Bank of England’s mandate. Read more

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Reporting by Elizabeth Howcroft; Editing by Alex Richardson

Our standards: The Thomson Reuters Trust Principles.

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