Dollar Largely Flat; Payrolls Release Set to End the Week

The dollar was largely unchanged in early European trade Monday, maintaining a firm tone after recent inflation data as the market prepares for this week’s key payrolls release.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded basically flat at 91.843, having recovered from Friday’s low of 91.524.

USD/JPY was 0.1% lower at 110.62, EUR/USD was down 0.1% at 1.1925, GBP/USD rose 0.1% to 1.3891, while the risk-sensitive AUD/USD was up 0.1% at 0.7590.

The dollar took an initial hit on Friday following the release of the Federal Reserve’s favorite gauge of inflation, the core U.S. personal consumption expenditures price index. This increased 0.5% in May, short of expectations for a 0.6% rise, which reassured some that inflation is not running out of control..

Even so, the year-on-year rise was 3.4%, the biggest jump since 1992, and failed to completely quell fears that the Federal Reserve will be forced to normalize monetary policy sooner than it currently expects.

Adding support to the greenback were comments from Federal Reserve Bank of Boston President Eric Rosengren on Friday, who suggested the central bank could consider an interest-rate hike as soon as late 2022 as the labor market reaches full employment.

With this in mind, Friday’s payrolls data will be the market’s key focus this week, with economists expecting an increase of 675,000 jobs.

That said, with concerns over mismatches of skills and opportunities in the labor market at the fore of investors’ minds, markets will also be looking at other parts of the labor market report, including wage growth and labor force participation.

“Nonfarm payrolls have disappointed over the past two months while average hourly earnings have surprised positively,” said analysts at Nordea, in a note. “These surprises likely reflect supply constraints pertaining to school closures as well as bonus jobless benefits often making it a better deal to stay home than to seek work.”

The week also includes and number of appearances by several Fed officials, including New York Fed President John Williams, Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and Fed Vice Chair Randal Quarles.