Dollar Struggles to Sustain Momentum Amid Rate Hike Expectations

The US dollar struggled to maintain its momentum on Monday despite an increase in expectations for a Federal Reserve rate hike. This boost was sparked by Friday's strong jobs report, which saw a 57% chance of a September rate hike priced into markets. However, the greenback came under pressure from shifting sentiment towards the Japanese yen and concerns about rising US debt and policy uncertainties.

A hot inflation print could seal a September rate hike and support a stronger dollar, but a cooler reading would strengthen the case for a hold and leave the dollar vulnerable to a dovish Fed repricing. Elias Haddad, global head of markets strategy at BBH, noted that even if a September Fed hike becomes a done deal, he doubts the US dollar will make new cyclical highs due to tightening by other major central banks.

The yen rose over 0.2% to 155.88 per dollar on Monday, extending gains after Japanese prime minister Sanae Takaichi's economic adviser projected a BOJ hike this month. Eric Robertsen, global head of research and chief strategist at Standard Chartered, warned that persistently strong yen could signal a change in asset allocation.