Dollar Steadies After Worst Day Since April as Fed Policy Cues Awaited

The U.S. dollar was stable in Monday trading after posting its worst session since the end of April last week. Currency markets are closely focused on the outlook for U.S. monetary policy, with key central bank minutes due later in the week.

At 16:02 ET (20:02 GMT), the U.S. Dollar Index (DXY), which measures the greenback against a basket of six major currencies, was nearly flat at 100.85. The index had fallen 0.5% on Thursday following a weaker-than-anticipated U.S. nonfarm payrolls report for June.

Fed Policy Remains in Focus

Last week's labor market data was interpreted by traders as a sign that the economy is resilient but not overheating, potentially giving the Federal Reserve room to keep interest rates on hold. Higher interest rates typically support a currency's value.

Investors are now looking ahead to the release of the minutes from the Fed's June meeting on Wednesday for further insight. According to Investing.com, the Fed, under new chair Kevin Warsh, signaled last month it would prioritize combating inflation. However, Warsh also noted last week that inflation risks had moderated.

"It’s probably because of Kevin Warsh’s ‘hawkish’ surprise at his June 17 FOMC presser, that the USD hasn’t weakened, despite lower oil crude prices," said Thierry Wizman, global FX and rates strategist at Macquarie, in a note cited by the source. He added that the dollar's rally is now "likely to stall."

Yen Hovers Near Intervention Zone

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Elsewhere, the Japanese yen continued to trade near a 40-year low against the dollar. The USD/JPY pair was up 0.4% to 162.04, keeping it well above the 160 level that has previously drawn intervention from Japanese authorities.

While the Bank of Japan hiked interest rates in June, the move has done little to arrest the yen's slide. Analysts at ING noted that while softer U.S. data provides near-term relief for the yen, "more hawkish rate communication from the Bank of Japan is still needed to prevent a repeat of the rebound in USD/JPY."

Euro Awaits ECB Signals

The euro was little changed against the dollar, with EUR/USD trading at $1.1441. The currency showed a muted reaction to fresh data from the Eurozone. According to Eurostat, industrial producer prices rose 5.9% year-over-year in May, while retail sales ticked up 0.2%.

Despite the European Central Bank (ECB) being the first major central bank to raise rates in the recent cycle, expectations for another hike are fading as regional inflation is forecast to cool. Markets will monitor upcoming speeches from ECB President Christine Lagarde and chief economist Philip Lane for new policy signals.