Dollar slips lower; Fed interest rate path, China's reopening in focus

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By Peter Nurse 

AiVIF.com - The U.S. dollar weakened in early European trade Monday, as traders reassessed the path of U.S. rate hikes in the wake of last week's jobs report while risk appetite benefited from China reopening its borders.

At 03:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.4% to 103.267, continuing Friday's over 1% drop.

Traders are now factoring in the U.S. central bank toning down its aggressive monetary tightening policy, with a 25 basis point hike now widely expected in February, down from an increase of 50 basis points in December.

This followed the release of the monthly official U.S. jobs report on Friday, which showed nonfarm payrolls rising by a relatively benign 223,000 jobs in December, while average hourly earnings climbed 0.3%, smaller than expected and less than the previous month's 0.4%.

Additionally, U.S. services industry activity contracted for the first time in more than 2½ years in December, more evidence of a cooling economy.

Bets against the greenback swelled to 30,457 contracts last week, the most since August 2021, according to data from the Commodity Futures Trading Commission on eight currency pairs compiled by Bloomberg.

This brings Thursday's U.S. consumer price index for December firmly into focus, as any sign that price pressures are continuing to ease would reinforce the view that the Fed is nearing the end of its most aggressive tightening cycle in decades.

Elsewhere, USD/CNY fell 0.9% to 6.7748, with the Chinese yuan hitting a four-month high after the country reopened its borders for international travel over the weekend.

This move marks the country's biggest pivot away from its strict zero-COVID policy, which contributed to the sharp drop in its economic growth over the past three years.

EUR/USD rose 0.5% to 1.0692, helped by data showing German industrial production rose 0.2% on the month in November, an improvement from the revised 0.4% drop seen the previous month.

GBP/USD rose 0.6% to 1.2159, having gained 1.5% on Friday, USD/JPY rose 0.1% to 132.25 and the risk-sensitive AUD/USD gained 0.8% to 0.6930.

USD/BRL has yet to trade Monday, but the Brazilian real will be in the spotlight later in the session as traders react to the news that supporters of far-right former President Jair Bolsonaro stormed key government buildings over the weekend, echoing the U.S. Jan. 6 insurrection of 2021.