Dollar rebounds after Friday's sharp losses; U.S. CPI in focus

Investing.com - The U.S. dollar gained in early European hours Monday, recovering some of Friday’s sharp losses after the weak payrolls release, while disappointing Chinese inflation data weighed on the yuan.

At 03:10 ET (07:10 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 102.020, after falling around 1% on Friday.

Weak payrolls weighed on dollar; CPI due Wednesday

The dollar slumped on Friday after the release of the monthly employment report which showed U.S. job gains were the smallest in two-and-a-half years, raising doubts about how much higher the Federal Reserve will need to take interest rates to slow the economy enough to impact inflation.

Nonfarm payrolls increased 209,000 in June, missing market expectations for the first time in 15 months.

However, the dollar has rebounded somewhat Monday, as traders reassessed the data, noting that the employment report still recorded strong wage growth, a big factor driving inflation.

Attention will now turn to Wednesday’s consumer price index release for June, which is expected to show that the index rising at the slowest annual increase since March 2021.

“The big risk event for the dollar this week is the June inflation report on Wednesday,” said analysts at ING, in a note. “Our economist expects a consensus 0.3% month-on-month core read, which should keep providing encouraging news on the disinflationary story – but should still fall short of tweaking the Fed narrative or convincing markets to price out a July hike.”

Additionally, several Fed officials are due to speak during the week, including Minneapolis Fed president Neel Kashkari, Cleveland Fed President Loretta Mester, San Francisco Fed president Mary Daly and Fed Governor Christopher Waller.

China’s inflation numbers disappoint

USD/CNY rose 0.2% to 7.2354, with the yuan weakening to levels last seen late last year after data released earlier showed that China's factory-gate prices fell at the fastest pace in seven-and-a-half years in June and consumer prices fell 0.2% on the month.

This data adds to evidence that the world’s second-largest economy is struggling to recover from its COVID hit, fuelling hopes for further support measures from Chinese authorities.

Elsewhere, EUR/USD fell 0.1% to 1.0962, GBP/USD dropped 0.1% to 1.2820, after having surged to a more than one-year peak of 1.2850 on Friday, USD/JPY rose 0.3% to 142.47, having fallen nearly 1.3% late last week, while AUD/USD, often seen as a proxy for the Chinese currency, dropped 0.5% to 0.6655.