FOREX-Dollar near two-month trough as US inflation data awaited

The US dollar hovered near a two-month low against major currencies as investors awaited this week's inflation data for clues on the Federal Reserve's rate path.

‌The ​U.S. dollar hovered near a two-month low against major currencies on Monday as investors awaited this week's inflation data for clues on the Federal Reserve's rate path.

The euro edged higher to $1.1558, hovering near ‌its strongest level since mid-June, while sterling was steady at $1.3490, near a five-week peak. The yen held firm at 157.90 per dollar, having given back some intervention-driven gains but remaining well off the roughly 164 multi-decade low hit late last month.

The dollar index, which tracks the currency against six major ‌peers, was little changed at 99.6, hovering near its lowest level since June 2. Data on Friday showed the U.S. economy unexpectedly shed jobs ‌in July and job gains for the prior two months were revised sharply lower, cooling expectations for a Fed rate hike next month.

U.S. Treasury yields fell as the jobs report dashed hike bets, with those on benchmark U.S. 10-year notes last at 4.637%. The futures market has scaled back the chance of a September move to ⁠around 44%, ​from 67% a week ago. "The weaker ⁠U.S. labor-market signal has pulled down real-rate expectations, extended the dollar decline... but not yet a clean easing story," Geoff Yu, senior EMEA market strategist at BNY, wrote in ⁠a note, adding that perceptions around U.S. inflation data will likely be the biggest factor for currencies this week.

A consensus estimate calls for the core CPI ​to rise 0.2% month-on-month in July, lifting the annual rate to 2.5% and extending a gradual moderation in inflation. The annual rate ⁠was 2.6% in June. Producer price data on Thursday and retail sales figures on Friday will further inform the outlook for inflation.

"Although there's a lot of inflation dynamics, the Fed ⁠will for ​now stay on the sidelines and wait to see how things play out," Rodrigo Catril, senior FX strategist at NAB, said in a podcast. Oil prices rose on Monday, with Brent oil futures last up 1.4% at roughly $85 per barrel amid continued uncertainty over the reopening ⁠of the Strait of Hormuz. Iran said a deal with Oman defining new shipping lanes was in its final stages but it added ⁠that the U.S. must still ⁠meet other conditions.

In Asia, the New Zealand dollar and Australian dollar each slipped 0.1% to $0.7062 and $0.5889 respectively. Market participants await the Reserve Bank of Australia's rate decision on Tuesday. The central bank is expected to hold its ‌key rate at 4.35% ‌for the rest of the year.