Dollar flirts with three-month peak as investors look to US data releases

The dollar firmed to a near three-month high on Monday as investors awaited the release of data this week to gauge the health of the U.S. economy and determine whether it could alter the Federal Reserve’s hawkish stance.

The yen languished near an 8-1/2-month low, pressured by wide interest rate differentials between the U.S. and Japan.

Trading was thinned in Asia on Monday due to a holiday in Japan, leaving currencies mostly rangebound, though most were pinned near recent lows against a strong dollar.

The euro fell to a three-month trough and last traded at $1.1527. Sterling fell 0.26% to $1.3136 ahead of the Bank of England’s rates decision this week; the central bank is expected to stand pat.

While the ongoing U.S. government shutdown is expected to delay the release of the nonfarm payrolls report on Friday, investors will have their eyes on other news, including ADP employment data and ISM PMIs this week for a pulse check on the economy.

“The lack of information is playing to sort of that calmness in markets,” said Rodrigo Catril, senior FX strategist at National Australia Bank. “And for now, I suppose what could break that while the shutdown is still ongoing, (is) a big downward surprise or even upward surprise in terms of surveys or private data releases.” “But otherwise, at the moment, even those private data releases are not screaming or telling us that the Fed should be moving in a hurry.” Last week, the Fed lowered rates by 25 basis points as expected but Chair Jerome Powell signalled that may be the central bank’s last reduction for the year, citing the risk of making additional moves without a more robust picture of the economy.

A number of Fed bank presidents on Friday also aired their discomfort with the decision to ease policy.

Traders have since pared back expectations for a cut in December and are now pricing in a roughly 68% chance of a move.

Against a basket of currencies, the dollar edged up slightly to 99.82, near its strongest level since August.

Elsewhere, the yen was recently 0.1% weaker at 154.15 per dollar as it struggled to make headway against its peers.

Against the euro, the Japanese currency was similarly pinned near a record low of 177.68.

Even though Bank of Japan Governor Kazuo Ueda last week sent the strongest signal yet that a rate hike was possible as soon as December, markets remained underwhelmed by the central bank’s gradual approach, particularly given that the Fed has turned more hawkish.

That has piled pressure on the yen, prompting jawboning from Japanese authorities to stem the currency’s slide.

“If we start getting towards 155, then you would think that those comments will become a little bit louder and even the risk of some intervention will increase,” Catril said. “But if anything, it sets the stage and is yet another argument to suggest that the BOJ cannot wait much longer.”

The New Zealand dollar was not far from a 6-1/2-month low and last traded $0.5721. The Aussie eased 0.05% to $0.6544 ahead of the Reserve Bank of Australia’s rate decision on Tuesday.