The dollar was little changed on Monday after a mixed US employment report failed to spark any significant market reaction. Traders shifted their focus to the upcoming inflation data from the US and China, which could provide some clues on the economic outlook and the monetary policy stance of the two largest economies.
US Jobs Report: A Mixed Bag
The US economy added 164,000 jobs in July, below the market expectation of 193,000, according to data released on Friday. However, the unemployment rate dropped to 3.7%, matching the lowest level since 1969, and the average hourly earnings rose 0.3% month-on-month and 3.2% year-on-year, beating the forecasts of 0.2% and 3.1%, respectively.
The dollar initially dipped to a one-week low against a basket of currencies after the release of the data. Still, its losses were limited as the report suggested a still-tight labor market, which could keep the Federal Reserve on track to raise interest rates further.
The US dollar index was last up 0.32% at 102.25, off Friday’s low of 101.73.
The pound sterling fell 0.15% to $1.2723, while the euro shed 0.23% to last at $1.0978.
“There was news in the report for everyone, depending on your tastes,” Chris Weston, head of research at Pepperstone, said of the employment report.
“We are seeing a cooling of the labor market, but it is not collapsing. Exactly what we hoped for is happening to it.”
US Inflation Data: A Key Test for the Fed
On Thursday, US inflation data will be published, where core inflation, which excludes food and energy prices, is expected to rise 4.7% year-on-year in July.
The Fed has struggled to achieve its 2% inflation target for years, despite raising interest rates four times in 2018 and nine times since late 2015.
The central bank cut rates by 25 basis points in July for the first time since 2008, citing global risks and muted inflation pressures.
However, some Fed officials have expressed doubts about the need for further easing, arguing that the economy is still strong and that inflation could pick up soon.
“It’s hard to imagine that the pullback is going to be significant across all dollar pairs because the US still has the best growth, you have a central bank that is still very data dependent, and I think that on this week, there are risks that the consumer price index will be higher than expected,” Weston said.
A higher-than-expected inflation reading could boost the dollar and reduce the market expectations of more rate cuts from the Fed this year.
China Inflation Data: A Sign of Slowing Growth
Also due this week on Wednesday, China’s inflation data for July is due out, with traders looking for further signs of deflation in the world’s second-largest economy.
“(We) expect the country’s main consumer price index to record deflation in July this year after consumer price growth stalled in June,” MUFG analysts said in a note.
China’s consumer price index rose 2.7% year-on-year in June, unchanged from May and below the market consensus of 2.8%. China’s producer price index fell 0.3% year-on-year in June after rising 0.6% in May and missing the market expectation of a flat reading.