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Dollar Stops As Rate Hike Fears Abate, Fed Minutes Awaiting

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LONDON – The dollar was stuck in neutral on Monday, after hitting a pothole as last week’s mixed stock market of US labor data allayed investor fears about an accelerated end to monetary stimulus.

While the June job creation figure beat forecasts, unemployment rose and labor force participation did not budge, suggesting positive progress, but room for the Federal Reserve to wait before cutting back on asset purchases. or raise rates.

Bonds rallied, equities rose, and the dollar fell on the data, falling further against risk-sensitive Australian and New Zealand dollars and the rate-sensitive yen.

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It stabilized with slight but ample gains in the Asia session, which were carried over to trading in Europe. It gained around 0.2% against the kiwi, which stood at $ 0.7022, traded unchanged at 111.05 yen and was up around 0.2% at $ 1.1859 per euro.

US markets are closed on Mondays for the Independence Day holiday.

“Friday’s NFP jobs report gave something for everyone in terms of an NFP gain above consensus, but also an unemployment rate above consensus,” ING strategists said in a note to clients.

“The US interest rate markets eased slightly their stance on the initial Fed tightening and the dollar closed a bit softer. Today’s US holiday suggests trading will be quiet today, though the Fed story will resurface Wednesday night as investors pore over the minutes of the fundamental meeting of the FOMC (Federal Open Markets Committee). from June 16 “.

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The dollar index was flat at 92,288, after falling to that level on Friday. But with a 2% rise in the three weeks since the Fed surprised investors with projected gains for 2023, analysts believe the dollar has room to rise a bit more.

“Since the Fed’s tough tilt in June, the dollar has been increasingly sensitive to the strength of domestic data, while some DM and EM pairs are still battling COVID outbreaks,” Maybank analysts in Singapore said. in a research note.

“As such, this strength in the dollar may last a bit longer and an optimistic risk climate may not be entirely detrimental to the dollar at this time.”

Elsewhere, the British pound was flat at $ 1.3835 and emerging market currencies in Asia made small gains to catch up with the dollar’s slide on Friday.

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MINUTES

The focus of traders this week is on the minutes of the Fed’s June meeting, scheduled for Wednesday, and a meeting of Australia’s central bank, both with the potential to wake up months of trading currencies in range at amid the uncertainty surrounding the policy outlook.

“More information on when the FOMC could reduce its asset purchases can boost US interest rates and the dollar,” said Joe Capurso, an analyst at the Commonwealth Bank of Australia, referring to the Federal Open Market Committee that sets rates.

“It may also be further proof that the FOMC’s inflation outlook is changing. In particular, analysts will look for signs that the FOMC is less confident that the rise in inflation will be transitory, ”he said. “Or that the FOMC’s tolerance for overshooting inflation is decreasing.”

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Also on the horizon this week is the meeting of the Reserve Bank of Australia (RBA) on Tuesday, which has markets on fire as the central bank has signaled a decision on the fate of its bond buying program and its target of performance.

Analysts said that if something that looks like a reduction comes from the hitherto dovish RBA, the Aussie could rise, while the Aussie could slide if the cautious tone is maintained.

Changes in the cash rate are not likely, but economists expect the three-year yield target to remain at the April 2024 bond, without spreading to the November 2024 bond line, and that the RBA Take a flexible approach to buying bonds.

Cryptocurrencies were offered on Monday, with bitcoin below its 20-day moving average at $ 34,256 and ether down 3% at $ 2,280.

(Report by Ritvik Carvalho; additional report by Tom Westbrook in Singapore; edited by Kevin Liffey)

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