Dollar Stabilizes Near One-Month Low as Markets Await U.S. CPI

The U.S. dollar steadied on Monday after falling to a more than one-month low following July’s unexpected payroll contraction. The Dollar Index rose 0.1% to 99.65 as traders shifted focus from the weak labor report to Wednesday’s U.S. CPI release.

Markets have sharply reduced expectations for a September Federal Reserve rate hike, with the implied probability falling to about 44% from 67% a week earlier. However, traders have been reluctant to extend dollar shorts ahead of inflation data, with core CPI expected to rise 0.2% month on month in July.

The yen also weakened to around 158.76 per dollar, while higher oil prices added pressure to Asian energy-importing currencies.

Trader outlook: CPI is now the key catalyst for the dollar. Softer inflation could reinforce expectations for a less restrictive Fed and weigh on USD, while a stronger reading could lift Treasury yields and support the greenback. Traders may also watch USD/JPY closely as thin liquidity could amplify moves.