The U.S. dollar moved lower on Monday as markets entered a data-heavy week, while the Japanese yen strengthened on renewed speculation over currency market intervention following the election victory of Japan’s prime minister Sanae Takaichi.
By 06:30 ET (11:30 GMT), the Dollar Index—which measures the greenback against a basket of six major currencies—was down 0.3% at 97.220, reversing part of last week’s gains.
Dollar eases ahead of key economic data
The dollar started the week under pressure as investors awaited a series of important U.S. economic releases, including retail sales, inflation data and the delayed employment report.
Analysts at ING noted that recent U.S. labour market figures surprised to the downside, raising expectations that the Federal Reserve may reassess its outlook on jobs growth.
Attention is centred on Wednesday’s January payrolls report, along with benchmark revisions. While consensus forecasts point to a gain of around 70,000 jobs, markets are seen as particularly sensitive to any downside surprise.
The Federal Reserve’s next policy meeting is scheduled for March, although futures markets currently price in only about a 15% chance of a 25-basis-point rate cut. Expectations increase significantly for June, which would mark the first meeting chaired by Kevin Warsh, should his nomination by President Donald Trump be confirmed.
The dollar was also weighed down by a Bloomberg report suggesting that Chinese regulators have urged financial institutions to reduce their exposure to U.S. Treasuries.
Euro gains, sterling pressured by political uncertainty
In Europe, the euro strengthened, with EUR/USD rising 0.4% to 1.1860, supported in part by the report on reduced Chinese demand for U.S. government debt. According to ING, Europe offers the most viable alternative to the U.S. Treasury market in terms of depth and liquidity.
However, the bank cautioned that stretched long positioning could limit further upside in the euro, noting that speculative net-long positions are nearing cyclical highs. In the near term, analysts see potential for EUR/USD to test the 1.1900 level.
Sterling was little changed, with GBP/USD trading around 1.3611. The pound failed to benefit from broader dollar weakness amid mounting political pressure on UK Prime Minister Keir Starmer. The resignation of his chief of staff has added uncertainty, keeping both sterling and UK government bonds under strain.
Yen supported by intervention warnings
In Asia, USD/JPY fell 0.3% to 156.69, after briefly declining as much as 0.5% earlier in the session. Although the yen remains historically weak against the dollar, it found support from repeated warnings by Japanese officials that market intervention remains a possibility.
Finance Minister Satsuki Katayama said authorities were coordinating closely with U.S. Treasury officials, raising the prospect of joint action if needed.
The comments provided temporary relief for the yen, which has faced renewed pressure following Takaichi’s decisive election win. Her ruling coalition now holds a supermajority in the lower house, clearing the way for large-scale fiscal spending plans.
Elsewhere, USD/CNY edged 0.2% lower to 6.9242, remaining near levels last seen in mid-2023. The yuan has strengthened in recent months with ongoing support from the People’s Bank of China, which has consistently set strong daily fixings. Chinese CPI data due on Friday is expected to provide further insight into the outlook for the world’s second-largest economy ahead of the Lunar New Year.
The Australian dollar also edged higher, with AUD/USD rising 0.1% to 0.7020 as markets priced in further rate hikes by the Reserve Bank of Australia. The RBA raised rates by 25 basis points last week and signalled a hawkish stance amid persistent inflation pressures.
