The US dollar fell to its lowest level in five weeks on Monday, as investors awaited a series of US labor market data this week that could influence expectations for the Federal Reserve’s monetary easing path.
Traders were also assessing US inflation data released on Friday, a court ruling that deemed most of the tariffs imposed by former President Donald Trump illegal, and the ongoing dispute between the US president and the Federal Reserve over his attempt to dismiss Governor Lisa Cook.
According to the CME FedWatch tool, money markets are now pricing in nearly a 90% probability of a 25-basis-point rate cut in September, and about 100 basis points of easing by the fall of 2026.
Against a basket of currencies, the dollar fell 0.22% to 97.64, after touching 97.534, its lowest since July 28. It had posted a monthly decline of 2.2% on Friday.
The main investor focus will be on Friday’s US nonfarm payrolls report, preceded by job openings data and private sector employment figures.
Analysts said the US economy is no longer outperforming as it did through much of the past decade, which justifies dollar weakness, while further signs of labor market slowdown are expected to reinforce this trend.
Klaus Baader, chief economist at Société Générale, said: “Severe weakness in the economic data may point to a stronger Fed response than markets currently expect, but if the weakness in May and June turns out to be just a statistical mirage, there will be no justification for cutting rates given the near certainty of rising inflation next year.”
Some analysts see a possibility that the Fed could cut rates by 50 basis points later this month.
The euro rose 0.32% to $1.1719, while the British pound gained 0.16% to $1.3525. US markets are closed on Monday for a public holiday.
Political attention is turning to France, where the government faces the possibility of losing a confidence vote over wide-ranging budget cuts. Analysts noted that such risks usually weigh on the currency when there are clear signs of contagion within the eurozone, which does not appear to be the case at present.
Investors are also tracking US trade policy as Washington continues negotiations with key trading partners. Mohit Kumar, economist at Jefferies, said: “We don’t expect the court ruling to have a major market impact, as the case will move to the Supreme Court, which is likely to rule in Trump’s favor.”
The dollar also faced added pressure from concerns about Fed independence, as Trump intensified his campaign to exert greater control over monetary policy. George Saravelos, global head of FX research at Deutsche Bank, said: “Fiscal dominance risks should be more evident, either through higher long-term US inflation expectations or a greater discount on the dollar, but neither has materialized yet.”
“Fiscal dominance” refers to a situation in which central banks are pressured to ease monetary policy in order to help finance large budget deficits.
The dollar was little changed at 147.00 yen after a 2.5% monthly decline in August. The onshore Chinese yuan stabilized at 7.1344, ending a six-day losing streak, after falling to 7.1260 on Friday — its lowest level since Trump’s US election victory in early November 2024.
Lee Hardman, senior FX strategist at MUFG, said: “By setting the daily reference rates at lower levels, the People’s Bank of China signaled that policymakers in Beijing are more comfortable allowing the yuan to strengthen against the US dollar in the near term.”
He added that the move “may reflect that Chinese policymakers are less concerned about downside growth risks in the short term.”
