Dollar Near Three-Month High as Investors Await Key U.S. Economic Data

The U.S. dollar strengthened to a near three-month high on Monday as investors awaited crucial economic data to gauge the strength of the U.S. economy and assess whether it could influence the Federal Reserve’s hawkish monetary stance.

The Japanese yen continued to weaken, hovering near an eight-and-a-half-month low, pressured by wide interest rate differentials between the U.S. and Japan. Trading in Asia was subdued due to a public holiday in Japan, leaving most currencies rangebound and pinned near recent lows against the strong greenback.

The euro slipped to a three-month trough at $1.1527, while the British pound fell 0.26% to $1.3136 ahead of the Bank of England’s policy meeting this week, where rates are expected to remain unchanged.

Despite the ongoing U.S. government shutdown, which could delay the release of Friday’s nonfarm payrolls report, traders are focusing on private data such as ADP employment figures and ISM PMIs for clues on the economy’s health. Analysts suggest that unless private data surprises significantly, the Fed is unlikely to rush into further policy changes.

Last week, the Federal Reserve cut interest rates by 25 basis points as expected, but Chair Jerome Powell signaled that it could be the final reduction of the year, stressing caution in adjusting rates without clearer economic indicators. Some Fed officials also voiced discomfort over the latest cut.

Markets have since scaled back expectations for another rate cut in December, now pricing in about a 68% chance. The dollar index edged up to 99.82, its strongest since August. Meanwhile, the yen weakened further to 154.15 per dollar, trading near record lows against the euro at 177.68.

Despite Bank of Japan Governor Kazuo Ueda hinting at a possible rate hike in December, investors remain skeptical of the BOJ’s gradual approach. Analysts warn that as the yen approaches 155 per dollar, pressure may mount for potential intervention to support the currency.