Dollar holds near two-week low as Fed rate hike bets ease

SINGAPORE: The US dollar steadied near a two-week low on Monday as investors reduced expectations of a Federal Reserve rate hike this year, while the yen remained close to a 40-year low and kept traders alert to possible Japanese intervention.

The dollar index, which measures the US currency against six major peers, was at 100.9 in early trading.

The euro traded at $1.1435, near its strongest level in two weeks, while sterling stood at $1.3351.

The dollar recorded its biggest weekly decline since April last week after US payrolls data showed job growth slowed sharply in June.

The softer labour market data reduced market expectations of further Federal Reserve tightening.

However, OCBC strategists said the drop in the unemployment rate still pointed to a tight labour market and could keep expectations of Fed tightening in place.

They said the broader outlook for the dollar remained constructive and maintained their view of a moderate 2% to 3% appreciation in the second half of 2026.

Investors are now awaiting minutes of the Fed’s June meeting this week for further signals on the interest rate outlook.

Lower oil prices have also eased some inflation concerns.

Strategists at Commonwealth Bank of Australia said the minutes may be shorter or less detailed than usual, given Fed Chair Kevin Warsh’s view that the central bank has previously provided too much guidance.

In Asia, the yen traded at 161.57 per dollar, close to the 1986 low of 162.84 touched last week.

Traders remained cautious after a sudden burst of yen buying briefly lifted the currency on Thursday, raising speculation about possible intervention by Japanese authorities.

OCBC strategists said intervention risk could trigger volatility and temporary corrections, but was unlikely to reverse the broader direction of dollar-yen without a change in macroeconomic fundamentals.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said the market was aware of intervention risks.

He said options market activity showed that some large investors had bought short-dated dollar puts to protect long dollar positions in case of intervention.

The South Korean won strengthened slightly on the first day of 24-hour onshore spot dollar-won trading.

The won was trading at 1,534 per dollar.