Dollar Steadies After Sharp Drop as Traders Await Fed Minutes

The U.S. dollar steadied on Monday, holding its ground after suffering its largest single-day decline since late April last week. Currency traders are now squarely focused on the Federal Reserve's next moves, with key meeting minutes due this week that could offer fresh clues on the path of monetary policy.

Fed Rate Outlook Dominates

The U.S. Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, was flat at 100.85 in afternoon trading, according to Investing.com data. This stability follows a 0.5% slide on Thursday, which was prompted by a softer-than-expected June nonfarm payrolls report.

The jobs data suggested the U.S. labor market is cooling, which could give the Federal Reserve less reason to pursue further interest rate hikes. Investors will now scrutinize the minutes from the Fed's June meeting, set for release on Wednesday, for deeper insight into policymakers' thinking on inflation and the economy.

Yen Hovers Near Intervention Zone

The Japanese yen resumed its decline against the dollar, with the USD/JPY pair rising 0.4% to 162.04. The currency remains near a 40-year low and well within a range that has previously prompted government intervention.

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Japanese authorities last intervened to support the yen in late April and early May after it weakened past the 160 per dollar mark. While officials have issued verbal warnings recently, the currency's weakness has persisted. According to analysts at ING, while softer U.S. data provides some relief, "more hawkish rate communication from the Bank of Japan is still needed to prevent a repeat of the rebound in USD/JPY."

Euro Holds Firm Amid Eurozone Data

In Europe, the euro was slightly higher against the dollar at $1.1441, holding steady after the release of mixed economic indicators for the Eurozone. Industrial producer prices rose 5.9% year-over-year in May, an increase from April's 5% reading, Eurostat reported. Separately, retail sales ticked up by 0.2% in May.

With regional inflation showing signs of easing and oil prices retreating, the case for another immediate rate hike from the European Central Bank (ECB) is seen as less likely. Market participants will be watching for comments from ECB President Christine Lagarde and chief economist Philip Lane later this week.