HomeBusinessDollar Wary of Inflation Data, Euro Consumes Germany's Data

Dollar Wary of Inflation Data, Euro Consumes Germany’s Data

By Joice Alves and Rae Wee

LONDON/SINGAPORE (Reuters) – The dollar rose sharply on Monday after a mixed US jobs report on Friday sent the US currency to a week-long low, with the market this week focusing on inflation data from the world’s two largest economies .

The euro weakened after data on Monday showed German industrial production fell more than forecast in June, underscoring the challenges facing manufacturing amid a downturn in Europe’s largest economy.

The dollar recovered from a week-long low on Friday in the wake of data showing the US economy added fewer jobs than expected in July, with daily losses limited by signs of solid wage increases and a fall in the unemployment rate .

That suggested that the Federal Reserve may need to keep interest rates high for longer.

The US dollar index, which measures the greenback against a basket of currencies, was last up 0.2% at 102.27, moving away from Friday’s low of 101.73.

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US inflation data is expected on Thursday, where core inflation is expected to have risen 4.7% year-on-year in July.

“We’re seeing the job market cooling, but it’s not crashing. It’s doing what we hoped it would do,” said Chris Weston, Pepperstone’s Head of Research.

“It’s hard to see the pullback being big across all dollar pairs because the US still has the best growth fundamentally, you (have) a central bank that’s still very reliant on data,” Weston said.

“I think there are risks this week that the CPI figure will come in above expectations.”

Against the dollar, the euro fell 0.3% to $1.0980, heading for a one-month low.

“This morning’s weaker-than-expected German industrial production data is a reminder of the headwinds facing the Eurozone economy and the possibility that ECB (European Central Bank) interest rates may already have peaked,” said Jane Foley, head of FX Strategy at Rabobank.

Also this week, China’s July inflation pressures are expected on Wednesday, with traders watching for further signs of deflation in the world’s second-largest economy.

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MUFG analysts said in a note they expected the country’s overall CPI to register deflation after consumer price growth stalled in June.

“While the narrative of a soft recovery in China is likely to remain intact in the near term, continued support from the Chinese government should boost the yuan.”

The Chinese yuan hovered near a two-week low, with its foreign counterpart down 0.2% at 7.2034 per dollar.

On Friday, a Chinese official said liquidity in the country’s banking system would remain fairly ample, though investors continued to crave more as Beijing slowly rolls out aid to revive its economy.

The yen fell 0.4% to 142.28 per dollar after hitting a week-long high of 141.52 per dollar in Asian trading.

The Bank of Japan debated the growing prospects of sustained inflation at its July meeting, with a board member saying wages and prices could continue to rise at a rate “unseen before,” according to a summary of opinions published on are released on Monday.

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Elsewhere, the British pound fell 0.18% to $1.2729, heading for a month-to-month low reached on Thursday after the Bank of England raised interest rates by 25 basis points to a 15-year high of 5.25% .

It was the 14th consecutive hike, but a step back from the pace of monetary tightening after rising 50 basis points at the previous meeting.

(Reporting by Joice Alves in London and Rae Wee in Singapore; edited by Jan Harvey)

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