US Dollar Holds Near a Two-Month Low
The US dollar remained close to a two-month low against major currencies on Monday as traders prepared for this week’s US inflation data.
The US Dollar Index, which measures the currency against six major peers, held near 99.6—its lowest area since 2 June.
EURUSD advanced to approximately $1.1558, close to its strongest level since mid-June. GBPUSD remained near a five-week high at approximately $1.3490, while USDJPY traded around 157.90.
The softer US dollar followed weaker-than-expected employment figures, which reduced expectations that the Federal Reserve would increase interest rates at its September meeting.
Currency markets are shifting their attention from employment conditions to inflation, with the next US CPI report likely to influence expectations for interest rates, Treasury yields and the US dollar.
Weak Employment Data Changes Rate Expectations
The US economy unexpectedly lost 23,000 jobs in July, compared with economists’ expectations for an increase of approximately 80,000.
June’s employment growth was also revised down to 20,000 jobs. The combination of a negative July reading and weaker earlier figures raised concerns that labour-market momentum may be slowing.
Following the employment report, financial markets reduced the estimated probability of a September interest-rate increase to approximately 44%, down from 67% one week earlier.
The weaker rate outlook placed downward pressure on Treasury yields and reduced support for the US dollar.
US Inflation Becomes the Main Market Catalyst
The July US Consumer Price Index will be one of the most closely watched economic releases this week.
Economists expect headline CPI to increase approximately 0.1% month over month. Core CPI, which excludes food and energy, is forecast to rise 0.2%.
On an annual basis, core inflation is expected to moderate to 2.5% from 2.6% in June.
Markets will examine several components:
- Housing and rental costs.
- Services inflation.
- Goods prices.
- Transportation expenses.
- Medical-care costs.
- Used and new vehicle prices.
- Clothing and household products.
How CPI Could Affect the US Dollar
A stronger-than-expected inflation reading could revive expectations for higher interest rates.
If core CPI rises by approximately 0.3% or more, traders may reassess whether the Federal Reserve can keep rates unchanged in September. Treasury yields could rise, potentially helping the US dollar recover.
A softer result could reinforce expectations that inflation is gradually moderating. This may keep yields under pressure and extend the dollar’s decline.
- Above-forecast CPI may support Treasury yields and the US dollar.
- An in-line reading may produce range-bound or volatile trading.
- Below-forecast CPI may place additional pressure on yields and the dollar.
- Soft headline inflation combined with firm core CPI may create a mixed reaction.
These outcomes are possible scenarios rather than guaranteed market reactions.
Treasury Yields Reflect Reduced Rate Risk
The yield on the benchmark US 10-year Treasury note traded around 4.64%–4.67% after declining in response to the employment report.
Treasury yields are an important driver for the US dollar because higher yields can increase the relative attractiveness of US-denominated assets.
Bond markets will also absorb approximately $125 billion of new US Treasury issuance during the week. Demand for these securities may influence yields before and after the inflation report.
EURUSD Tests a Seven-Week High
EURUSD traded near $1.1558, placing the pair close to its highest level in approximately seven weeks.
The $1.16 area represents the nearest major psychological reference. A sustained move above this region could strengthen the euro’s upward momentum.
On the downside, $1.15 may provide an initial reference. A stronger US CPI report could lift the US dollar and push EURUSD toward this area.
GBPUSD Holds Near a Five-Week Peak
Sterling remained close to $1.3490, supported by the broader decline in the US dollar.
The $1.35 level is an immediate psychological reference for GBPUSD. A confirmed move above it could bring higher price areas into focus.
If US inflation is softer than forecast, GBPUSD may receive further support. A stronger CPI result could lift Treasury yields and create pressure near $1.35.
USDJPY Stabilises Near 158
USDJPY held around 157.90 after retreating from the multi-decade high near 164 recorded in late July.
The pair continues to respond to the substantial difference between US and Japanese interest rates. Lower US Treasury yields can reduce support for USDJPY, while rising yields may strengthen the pair.
The 158 level is an immediate market reference, followed by the psychological 160 area. On the downside, the 157 and 155 regions may attract attention if the US dollar weakens further.
Gold Holds Above $4,300
Gold held near $4,342 per ounce on Monday after gaining more than 7% during the previous week.
The precious metal benefited from lower Treasury yields and the weaker US dollar following the disappointing employment report.
Because gold does not generate interest income, declining yields can make it more attractive relative to yield-bearing assets.
- Softer inflation may support bullion by reducing yields.
- Stronger inflation may create pressure if rate expectations increase.
- Conflicting headline and core readings may produce two-way volatility.
- Changes in the dollar may amplify gold’s reaction.
The $4,300 area remains an important short-term market reference.
Asian Equity Markets Edge Higher
Asian equity markets advanced modestly on Monday after the softer employment report reduced concerns about an immediate increase in US borrowing costs.
Japan’s Nikkei 225 rose approximately 0.6%, while South Korea’s KOSPI gained around 0.5%. The MSCI Asia-Pacific index excluding Japan advanced approximately 0.3%.
With nearly 90% of S&P 500 companies having reported, the earnings-per-share beat rate reached approximately 76%, matching its strongest level since 2021.
AI-related companies delivered median earnings growth of approximately 28%, compared with 12% for companies outside the AI group.
Additional Data Could Shape the Outlook
Producer-price data are scheduled for Thursday, followed by retail-sales figures on Friday.
Producer prices can provide information about cost pressures faced by businesses, while retail sales will offer a clearer view of household demand after the weaker employment report.
Together, employment, inflation and spending data will help markets assess whether current monetary policy remains appropriate.
What Traders Should Monitor Next
- July headline and core CPI.
- Monthly and annual inflation rates.
- Housing and services inflation.
- US producer prices.
- US retail sales.
- Federal Reserve communication.
- September interest-rate expectations.
- US Treasury yields.
- The US Dollar Index near 99.6.
- EURUSD near $1.16.
- GBPUSD near $1.35.
- USDJPY near 158.
- Gold’s position above $4,300.
Market Outlook
The US dollar enters the new week near a two-month low after weaker employment figures reduced expectations for a September Federal Reserve rate increase.
The next direction will likely depend on whether the CPI report confirms that inflation is gradually moderating.
A softer inflation reading could keep Treasury yields under pressure, support EURUSD and GBPUSD, and allow gold to remain above $4,300. A stronger result could restore expectations for tighter monetary policy and trigger a dollar recovery.
Until the inflation report provides greater clarity, the US dollar is likely to remain sensitive to Treasury yields, interest-rate expectations and incoming economic data.
DISCLAIMER: Derivative products carry high risk and may result in the loss of your entire invested capital. Before trading, ensure you fully understand the legal framework, product characteristics and your broker’s trading rules. Always trade responsibly and with caution.
RISK WARNING: Margin trading with leverage is not suitable for all investors due to its high risk. THERE ARE NO GUARANTEED RETURNS in trading. Beware of claims promising assured profits. Only use capital you can afford to lose. Before entering any transaction, ensure you understand the risks and assess your experience and risk tolerance.
