Dollar Steadies After Sharp Drop as Traders Await Fed Minutes

The U.S. dollar held steady on Monday, pausing after its largest single-day decline since late April as investors assessed the outlook for Federal Reserve monetary policy. The U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was trading just above the flatline at 100.85 in late afternoon trade.

Spotlight on Fed Policy

The dollar's stabilization follows a 0.5% slide on Thursday, which was triggered by a softer-than-expected June nonfarm payrolls report. That data suggested to traders that the labor market, while resilient, was not overheating, potentially giving the Fed more room to keep interest rates on hold.

Market participants are now awaiting the minutes from the Fed's June meeting, due for release on Wednesday, for further insight into policymakers' thinking. Projections from that meeting indicated that half of the committee members believed further rate hikes could be warranted this year. According to Macquarie strategists, the dollar's recent strength, despite falling oil prices, was likely due to a "hawkish surprise" from Fed Chair Kevin Warsh in June, but they noted this hawkish adjustment is "probably complete."

Yen Hovers Near Intervention Zone

Elsewhere, the Japanese yen weakened, with the USD/JPY pair rising 0.4% to 162.04. The yen remains near a 40-year low and continues to trade in territory that has previously prompted intervention from Japanese authorities. The 160-per-dollar level is seen by many as a key threshold.

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While the yen saw a brief bout of strength following last week's U.S. jobs data, it has struggled to gain sustainable momentum despite the Bank of Japan hiking interest rates in June. "While softer US data improves near-term conditions for the yen, we believe more hawkish rate communication from the Bank of Japan is still needed to prevent a repeat of the rebound in USD/JPY," analysts at ING said in a note.

Euro Edges Higher on Mixed Data

The euro edged slightly higher against the dollar to $1.1441 following the release of mixed economic indicators from the Eurozone. According to Eurostat, industrial producer prices jumped 5.9% year-over-year in May, driven by a 14% surge in energy prices.

A separate report showed retail sales in the bloc ticked up by a modest 0.2% in May. With Eurozone inflation now expected to have fallen in June and oil prices declining, the case for another rate hike from the European Central Bank is becoming less likely, according to market consensus.