The dollar nudged higher against major currencies on Monday, stabilising after a steep fall last week that followed remarks from Federal Reserve Chair Jerome Powell that raised expectations of a rate cut next month. The euro declined 0.2% to $1.1693, pulling back from a four-week high of $1.174225 touched on Friday. Sterling and the Swiss franc were each down 0.1%. Major brokerages, including Barclays, BNP Paribas and Deutsche Bank, expect a 25-basis-point Fed rate cut in September following Powell's remarks.
Expectations of policy easing and a slowing US economy, alongside lingering worries about the US fiscal position, are likely to exert pressure on the US dollar, said Samy Chaar, chief economist at Lombard Odier, Reuters reported.
Traders price in 85% odds of a quarter-point cut on September 17, up from around 70% before Powell delivered his speech, according to CME's FedWatch tool.
Measured against a basket of six major currencies, the dollar has weakened by more than 9.5% so far this year. The single currency has been the lead gainer in the basket with a near 13% rise on the year.
Chaar expects the euro to strengthen to about $1.20-$1.22 over the next six-to-12 months. Meanwhile, eurozone bond yields moved higher on Monday, reversing a fall from late last week as traders reassessed their expectations for the US Federal Reserve and the impact on Europe. They also processed data showing an uptick in German business morale. Germany's 10-year bond yield, the benchmark for the euro zone, rose 5 basis points to 2.77%, nearing a five-month peak of 2.787% hit last week.
US Treasury yields were also slightly higher across the curve as traders calibrated positioning. The two-year Treasury yield, especially sensitive to interest rate expectations, was last up 2 basis points at 3.71%.
Apart from the Fed's policy path, investors are likely to stay focused on US President Donald Trump's attacks on Powell and other Fed policymakers, which have raised concerns about the central bank's independence. "Renewed efforts to reshape the Fed present a potential challenge to longer maturities," analysts at Goldman Sachs said in a note. The 30-year US Treasury yield was last at 4.9050%.
Upcoming data points include the Fed's preferred inflation gauge, the PCE deflator, on Friday, and monthly payrolls figures for August, due a week later. Elsewhere, the Chinese yuan leapt to the strongest level in a month, boosted by broad weakness in the dollar.
In cryptocurrencies, ether fell 5% on Monday after touching a record high of $4,955.14 over the weekend. Bitcoin was down about 1.5% to $111,197.
