Dollar Climbs for Fifth Day as US Traders Return From Holiday

The dollar extended its rebound to a fifth straight session as US traders readied their return from a holiday to a week packed with economic data, Bloomberg reported.

The greenback gained against most of its Group-of-10 peers on Tuesday and the Bloomberg Dollar Spot Index inched up 0.1%. Cash trading of Treasuries resumed after a US Labor Day holiday on Monday, with policy-sensitive two-year yields edging up one basis point to 3.93%.

Investors awaited US economic data including some on manufacturing due Tuesday, services Thursday and key non-farm payroll figures Friday to see if market pricing for Federal Reserve policy easing is justified. The swaps market is pricing in a one-in-four chance that the Fed will cut its benchmark rate by more than 25 basis points this month.

“We have expected some interim rebound in US yields and hence the dollar” as investors await labor market data, said Frances Cheung, head of foreign-exchange and rates strategy at Oversea-Chinese Banking Corp. in Singapore. “An in-line payroll outcome may be enough for the market to pare back some near-term Fed rates cut expectations.”

Bloomberg’s dollar gauge posted its first back-to-back monthly drop this year in August as Fed Chair Jerome Powell said “the time has come” to adjust policy. Still investors are questioning whether US economic growth and inflation have slowed enough to lead the central bank into a 50 basis point rate cut at its Sept. 17-18 meeting.

The first test for the market would be the August ISM manufacturing data due later Tuesday. The gauge will probably rebound for the first time since March, economists forecast.

“The greenback remains at risk of further bullish extension should the US August ISM manufacturing surprise to the upside and spur a more material repricing of rate cut bets,” Malayan Banking Bhd strategists led by Saktiandi Supaat wrote in a note.

The dollar’s strength weighed on most Group-of-10 currencies on Tuesday. Australia’s dollar fell the most as iron-ore futures dropped and a key input for gross domestic product fell short of economist estimates. The yen outperformed after Bank of Japan Governor Kazuo Ueda reiterated his plan to tighten policy further.

“The Fed says it is data dependent and thus the market has become heavily data dependent as well,” said Karl Steiner, head of analysis at Skandinaviska Enskilda Banken AB. That makes it interesting to observe where market conditions are stretched, with positioning more neutral on the yen than in early August, he said.