Dollar falls ahead of data deluge; yen firms after Takaichi’s election victory

The U.S. dollar fell on Monday after a solid week of gains, with investors looking ahead to a busy week for important economic data. Meanwhile, the Japanese yen strengthened on more intervention talk after Japanese Prime Minister Sanae Takaichi’s election victory.

At 14:50 ET (19:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.8% lower to 96.81.

The index is coming off a weekly gain of nearly 1%, triggered by the nomination of Kevin Warsh for the next Fed Chair. Also in the spotlight was the yen after Takaichi and her Liberal Democratic Party swept Japan’s snap election. 

Dollar slips ahead of data deluge 

The U.S. currency has started the new week on the backfoot as traders await the release of several key data releases, including retail sales, inflation and the keenly-watched delayed jobs report.

“U.S. labor market data surprised on the downside last week, and markets are now bracing for the Federal Reserve to potentially re-appraise its view of the jobs market,” said analysts at ING, in a note.

The focus this week will be on Wednesday’s release of the January payrolls report and also benchmark revisions. 

“Consensus expects a decent +70k increase, but the market will be more sensitive to a downside miss,” added ING. 

The Federal Reserve next meets in March, but Fed funds futures are only pricing in around a 15% probability of a 25-basis-point cut at that meeting.

Expectations grow sharply over the possibility of a cut in June, though, as this would be the first meeting with Warsh as head of the Fed, if his nomination by U.S. President Donald Trump is confirmed.

Also weighing on the dollar Monday was a report by Bloomberg News that indicated Chinese regulators have advised financial institutions to curb their U.S. Treasury exposure.

Euro rises, sterling weighed by politics  

In Europe, EUR/USD traded 0.9% higher to 1.1917, with the single currency benefiting from the Bloomberg report.

“Europe offers the best alternative in terms of depth and liquidity to the U.S. Treasury market,” said ING. 

“Stretched long positioning does look like the main barrier to a further EUR/USD advance,” the Dutch bank added. “Friday’s release of CFTC positioning data suggested that leverage fund net long positions are again approaching cyclical highs. But the short-term bias in EUR/USD looks to be towards 1.1900.”

GBP/USD traded 0.6% higher at 1.3694, with sterling failing to benefit from the dollar weakness amid pressure upon British Prime Minister Keir Starmer.

Starmer’s chief of staff resigned on Sunday, saying he was taking responsibility for advising Starmer to name Peter Mandelson as ambassador to the U.S., despite his known links to late sex offender Jeffrey Epstein.