The dollar fell to a six-week low against the yen on Monday as traders bet the Fed had less tightening to do with the U.S. economy in recession.
The dollar hit 132.07 yen for the first time since June 16 and last traded at 132.605, down 0.45%.
The currency pair is vulnerable to movements in U.S. long-term Treasury rates, with the benchmark 10-year at 2.67 percent after falling to 2.618 percent last week.
The dollar index fell 0.18 percent to 105.80, nearing Friday’s low of 105.53, not seen since July 5.
Jefferies strategists said U.S. interest rate forecasts peaked in June.
“The dollar is overvalued by all criteria.”
The dollar rose after the personal consumption expenditures (PCE) price index showed the strongest inflation since 2005, but fell when the final University of Michigan report showed sliding consumer inflation forecasts.
This Friday’s jobs report is this week’s economic highlight.
Traders predict that the Fed will raise interest rates by 75 basis points at its September 21 meeting, with a 69 percent chance of a half-point increase.
“Markets appear to be thinking the Fed has done the lion’s share of its job on inflation and will be amenable to slowing activity data,” said NAB’s Taylor Nugent.
The euro was unchanged at $1.02235, continuing its consolidation near the middle of its range.
After topping $1.2245 on Friday, sterling was unchanged at $1.2183. Markets expect the Bank of England to raise rates by a half point on Thursday, compared to a quarter point.
The Reserve Bank of Australia sets policy on Tuesday and is projected to raise rates by half a point, with a 16% possibility of a quarter-point tightening.
The Australian dollar fell 0.1% to $0.6984 on Monday after reaching a six-week high of $0.7032.
According to data, China’s industrial activity slowed in July.
“If the market keeps getting what it wants from the Fed, the Aussie can stay over $0.70,” NAB’s Nugent said.
In the coming months, $0.65-0.70 should see the most price activity.
