The dollar strengthened to a near three-month high on Monday as investors anticipated the release of data this week to assess the health of the U.S. economy and evaluate its potential impact on the Federal Reserve’s hawkish stance. The yen remained close to an 8-1/2-month low, influenced by significant interest rate differentials between the U.S. and Japan. On Monday, trading activity in Asia was subdued due to a holiday in Japan, resulting in currencies remaining largely within a narrow range. However, the majority were positioned close to recent lows against a robust dollar. The euro declined to a three-month low, with its latest trading value at $1.1527. Sterling declined by 0.26% to $1.3136 in anticipation of the Bank of England’s rates decision this week; the central bank is projected to maintain its current stance. As the U.S. government shutdown continues, the anticipated delay in the release of the nonfarm payrolls report on Friday is noteworthy. Investors will be closely monitoring additional developments, such as ADP employment data and ISM PMIs this week, to gauge the economic landscape.

“The absence of information is contributing to a certain tranquility in the markets,” stated Rodrigo Catril. “Currently, it seems that the only factors that could disrupt this situation while the shutdown persists are significant downward or upward surprises in survey results or private data releases.” “However, currently, even the private data releases are not indicating that the Fed needs to act swiftly.” Last week, the Fed lowered rates by 25 basis points as anticipated; however, Chair Jerome Powell indicated that this might be the central bank’s final reduction for the year, referencing the potential risks of further adjustments without a clearer understanding of the economic landscape. Several Federal Reserve bank presidents expressed their unease on Friday regarding the decision to relax policy.

Market participants have adjusted their forecasts regarding a potential rate cut in December, now reflecting approximately a 68% probability of such an action. The dollar saw a modest increase against a basket of currencies, reaching 99.82, close to its highest point since August. In other markets, the yen was recently down 0.1% at 154.15 per dollar, facing challenges in gaining ground against other currencies. Wall Street’s primary indexes finished the day on a positive note on Friday, with the Dow experiencing a slight increase. The Japanese currency was similarly positioned near a record low of 177.68 against the euro. Despite Bank of Japan Governor Kazuo Ueda indicating last week that a rate hike could be on the table as early as December, market reactions were muted towards the central bank’s cautious strategy, especially in light of the Federal Reserve’s increasingly hawkish stance.

The situation has intensified pressure on the yen, leading to verbal interventions from Japanese authorities aimed at curbing the currency’s decline. “If we approach 155, then one might anticipate that those comments will become increasingly pronounced and the likelihood of some intervention will rise,” Catril stated. “However, it establishes a foundation and serves as an additional rationale indicating that the BOJ may not have the luxury of time.” The New Zealand dollar approached a 6-1/2-month low, with its most recent trading value at $0.5721. The Australian dollar declined by 0.05% to $0.6544 in anticipation of the Reserve Bank of Australia’s rate decision scheduled for Tuesday.