The dollar fell on Monday, when U.S. markets were closed for a holiday, as investors weighed U.S. jobs data that showed some signs of cooling, boosting bets that the Federal Reserve could be nearing the end of its monetary tightening cycle.
Against a basket of currencies, the dollar fell 0.1% to 104.14, but remained near a two-month high of 104.44 reached on Aug. 25. The index gained 1.7% in August, snapping its two-month losing streak.
Friday's data showed that U.S. job growth picked up in August, but the unemployment rate jumped to 3.8% while wage growth moderated. The economy created 110,000 fewer jobs than previously reported in June and July.
"The Goldilocks metaphor is often used and abused in economic and financial circles, but in the context of the various 'soft landing' signals coming out of the report, it seems entirely appropriate in this case," said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:NABZY).
A slew of economic data highlighting moderate inflation as well as a loosening labor market contributed to the perception that the U.S. economy is cooling without slowing sharply, reinforcing hopes that the economy is poised for a soft landing.
According to CME's FedWatch tool, markets are pricing in a 93% probability that the Fed will keep rates unchanged this month, and a more than 60% probability that there will be no more rate hikes this year.
With U.S. markets closed on Monday, liquidity is likely to be low and traders will be hesitant to place big bets.
Analysts at UniCredit expect trading to remain subdued on Monday, although European Central Bank President Christine Lagarde is due to speak later in the day.
The euro rose 0.2% to $1.0793, just off the 10-week low it touched against the dollar last week. Sterling rose 0.3% to $1.2627.
U.K. Chancellor of the Exchequer Jeremy Hunt said over the weekend that inflation is on track to be halved by the end of 2023, and promised to focus on that target as he set out his priorities ahead of the reopening of parliament after the summer recess.
Revised UK data released on Friday showed the economy has recovered from the pandemic faster than previously thought.
Elsewhere, the yen weakened 0.09% to 146.39 per dollar. Japan's currency has traded around the psychologically important 145 level since mid-August and traders are watching for any signs of intervention.
Japan intervened in currency markets last September when the dollar's rise above 145 yen prompted the finance ministry to buy yen and push the pair back to around 140 yen.
The Australian dollar added 0.2 percent to $0.6465 ahead of Tuesday's Reserve Bank of Australia meeting, which is expected to hold steady. A Reuters poll showed that all but two of 36 economists said the RBA would hold its official cash rate at 4.10% on September 5.
The Australian and New Zealand dollars were buoyed on Monday by measures by Chinese authorities to help support China's property sector. [AUD/]
The Canadian dollar advanced 0.14% to 1.36 per dollar ahead of this week's Bank of Canada meeting, with the central bank expected to keep rates on hold.
Looking ahead, investors will focus on a number of Fed officials expected to speak this week for clues on what the U.S. central bank will do at its next meeting on September 19 and 20.