Anna 
The dollar exhibited broad strength on Monday, as subdued risk appetite prevailed in the markets, awaiting a crucial U.S. inflation report later in the week that is expected to offer insights into the Federal Reserve’s monetary policy outlook.
With Japan observing a holiday, trading in Asia was thin. The yen struggled near the 145 per dollar level, having incurred significant losses in the preceding week. Meanwhile, the risk-sensitive Australian and New Zealand dollars saw marginal declines in a cautious start to the week.
Against the yen, the dollar retreated 0.22% to 144.29, paring some gains from the previous week when it posted a 2.6% increase against the Japanese currency, marking its strongest weekly performance since June 2022. The New Zealand dollar dipped 0.05% to $0.6239 after a 1.2% slide last week, while the U.S. dollar index steadied at 102.43.
The dollar’s rise was supported by a rebound in U.S. Treasury yields, with traders adjusting their expectations for the pace and scale of Federal Reserve cuts in 2024.
Market attention is now focused on the U.S. inflation data scheduled for Thursday, with the potential to influence market views. Friday’s data indicated that U.S. employers hired more workers than anticipated in December, signaling a resilient labor market. However, a separate survey revealed a considerable slowdown in the U.S. services sector, presenting a mixed picture of the world’s largest economy.
Economists at Wells Fargo noted, “The key labor market themes remain in place. The labor market is no longer as tight as it was earlier in the recovery…Job growth remains solid, and the low level of layoffs remains encouraging.”
Market pricing now indicates a roughly 64% chance of the Fed beginning easing rates as early as March, compared to nearly 90% a week ago, according to the CME FedWatch Tool.
Elsewhere, sterling lost 0.12% against the dollar, trading at $1.27035, while the euro remained flat at $1.09405 after a 0.9% decline last week. The Australian dollar slid 0.13% to $0.67055, extending its 1.5% fall from the previous week. A reading on Australian inflation is also anticipated later this week, with market analysts focusing on the core measure as the Reserve Bank of Australia’s primary concern.
