By Caroline Valetkevitch

NEW YORK (Reuters) – The U.S. dollar hit its lowest level since mid-June against the Japanese yen on Monday as investors weighed the likelihood that the Federal Reserve will not raise interest rates as aggressively as some had expected.

The U.S. dollar index was volatile after data showed U.S. manufacturing activity nN9N2WB01T slowed less than expected in July. But a key report for investors this week will be the U.S. monthly jobs report on Friday.

“It’s the beginning of a new month, and the real focus is on the possibility that the Fed slows down its rate hikes,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“The big focus is on the jobs data at the end of the week, and that’s likely to confirm that the improvement in the labor market is moderating,” he said. “It’s a weak number, but only given our recent past.”

The dollar index is up roughly 10% for the year so far, boosted by investor expectations of an aggressive rate hike policy from the Fed.

“After a big move, I think we’re really consolidating,” Chandler said.

Last week, the Fed raised the benchmark overnight interest rate by three-quarters of a percentage point. The move came on top of a 75 basis points hike last month and smaller moves in May and March, in an effort by the U.S. central bank to cool inflation.

Also last week, the dollar crumbled against the yen, and two-year yields in the U.S. Treasury market also fell, after data showed the U.S. economy shrank for a second straight quarter.

On Monday, the dollar sank to its lowest level versus the yen since mid-June, and was down from a late 1998 peak of nearly 140 yen which it hit last month. The dollar was last down 1.2% at 131.65.

The dollar index was last down 0.6%.

The broad weakness in the dollar helped the euro, which was up 0.3% at $1.0260.

Currency investors were also watching news on U.S. House of Representatives Speaker Nancy Pelosi’s expected visit to Taiwan. Pelosi was set to visit Taiwan on Tuesday, Reuters reported, citing three sources. The United States says it would not be intimidated by Chinese threats to never “sit idly by” if she made the trip to the self-ruled island claimed by Beijing.

The Aussie dollar nL4N2Z81WS rose 0.5% to $0.7027.

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