Dollar sinks to two-month low as markets await CPI data

Global financial markets opened the week in a cautious holding pattern on Monday as investors awaited the US July Consumer Price Index report due Wednesday, August 12, with the dollar hovering near a two-month low after unexpectedly weak jobs data reshaped expectations for Federal Reserve policy.

Weak Jobs Data Reshapes Rate Expectations

The dollar index was little changed at 99.6 on Monday, near its lowest level since early June, after data released Friday showed the US economy unexpectedly shed jobs in July while gains for the prior two months were revised sharply lower. The weaker labor market signal prompted markets to scale back the probability of a September rate hike to around 44%, down from 67% a week earlier.cnbc+2

"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.cnbc

The euro edged higher to $1.1558, near its strongest since mid-June, while sterling held steady at $1.3490. US Treasury yields fell, with the 10-year benchmark last at 4.637%. Gold prices stabilized around $4,342 per ounce after a sharp rise in the prior session, while silver consolidated near $63.50.bitcoinworld+2

CPI Report Carries Outsized Weight

The consensus estimate calls for core CPI to rise 0.2% month-on-month in July, lifting the annual rate to 2.5% from 2.6% in June. The report will be followed by producer price data on Thursday and retail sales on Friday, forming a trio of releases that could determine the Fed's path at its September meeting.brandiconimage+1

"We think the bias remains negative this week but if we get a hot break on CPI, markets are going to be back to pricing in a rate hike as their baseline," said Francesco Pesole, FX strategist at ING.brandiconimage

The S&P 500 closed at a record high last week, supported by AI-driven gains in technology stocks, but futures were flat heading into Monday.marketwatch+1

Geopolitics Add Another Layer of Uncertainty

Complicating the outlook, Iran said it was nearing an agreement with Oman on new shipping lanes through the Strait of Hormuz but indicated the US must meet additional conditions before the waterway fully reopens. Brent crude rose on Monday amid the continued uncertainty, keeping energy-driven inflation pressures in focus.economictimes+1

"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," said Rodrigo Catril, senior FX strategist at NAB.cnbc