US dollar slips as traders cautious before Fed's Jackson Hole symposium

By Laura Matthews

NEW YORK (Reuters) - The dollar inched lower against a basket of its peers on Monday, snapping a five-week winning streak, as investors bided time ahead of the U.S. Federal Reserve's Jackson Hole, Wyoming, symposium starting on Friday, with expectations that central banks could keep rates higher for longer.

The dollar index, which measures the currency against six other majors, fell 0.077% and was last seen at 103.290, moving away from Friday's two-month high of 103.68.

Amo Sahota, director at Klarity FX in San Francisco, said while the symposium has been pivotal in changing the markets trajectory and thinking in past years, disappointment might be on the horizon.

"The fight against inflation has not been won. The Fed has already bellowed that from the rooftops multiple times," said Sahota, pointing to continuously strong U.S. economic data. "I don't think they're going to turn around and say, 'We're done raising rates.' They need to see more, and it's not enough at this point."

The euro was up 0.21% at $1.0896 while sterling was last trading at $1.2762, up 0.21%.

The Japanese yen, which is on intervention watch, weakened 0.55% versus the greenback at 146.21 per dollar, with analysts now seeing the threshold for intervention at around 150 per dollar.

Meanwhile, the offshore yuan, also on watch for intervention, rose 0.3% versus the greenback at 7.2853 per dollar.

China's currency fell to the weaker side of 7.3 per dollar earlier before rebounding after Reuters reported that state-owned Chinese banks were seen actively mopping up offshore yuan liquidity, a move that raised the cost of shorting the currency.

China earlier cut its one-year benchmark lending rate by 10 basis points (bps) and left its five-year rate unchanged, against economists' expectations for larger 15-bps cuts to both.

Jane Foley, head of FX strategy at Rabobank in London, said a firm dollar is problematic for both central banks since "it threatens to expose both currencies to undesirable weakness." 

In the United States, Fed Chair Jerome Powell is set to speak on Friday. His comments may set the direction for U.S. Treasury yields, which have driven the rise in the dollar in recent weeks.

Benchmark 10-year yields soared to a 15-year high on Monday and were last up 8.9 basis points at 4.339%. [US/]

The theme this year for the annual gathering in Wyoming is "structural shifts in the global economy."

"If we were looking at Jackson Hole, Lagarde's speech might actually be more of a market mover than Powell's," said Karl Schamotta, chief market strategist at Corpay in Toronto, referring to European Central Bank President Christine Lagarde. "If Powell stays on the theoretical side of things, that might lower implied volatility of the dollar and lead to a smaller reaction."

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Currency bid prices at 3:33PM (1933 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

103.2900 103.3900 -0.08% -0.193% +103.5000 +103.1300

Euro/Dollar

$1.0898 $1.0873 +0.23% +1.71% +$1.0914 +$1.0871

Dollar/Yen

146.2100 145.4100 +0.56% +11.53% +146.3950 +145.1450

Euro/Yen

159.35 158.03 +0.84% +13.58% +159.3800 +157.8000

Dollar/Swiss

0.8781 0.8828 -0.53% -5.03% +0.8827 +0.8781

Sterling/Dollar

$1.2762 $1.2736 +0.20% +5.52% +$1.2767 +$1.2711

Dollar/Canadian

1.3542 1.3551 -0.06% -0.04% +1.3572 +1.3497

Aussie/Dollar

$0.6419 $0.6405 +0.21% -5.84% +$0.6421 +$0.6388

Euro/Swiss

0.9569 0.9587 -0.19% -3.29% +0.9601 +0.9569

Euro/Sterling

0.8537 0.8539 -0.02% -3.47% +0.8562 +0.8534

NZ

Dollar/Dollar $0.5930 $0.5924 +0.07% -6.64% +$0.5936 +$0.5897

Dollar/Norway

10.6000 10.6540 -0.36% +8.17% +10.6600 +10.5530

Euro/Norway

11.5572 11.5632 -0.05% +10.13% +11.5920 +11.5110

Dollar/Sweden

10.9454 10.9756 -0.09% +5.17% +10.9981 +10.9023

Euro/Sweden

11.9290 11.9395 -0.09% +6.99% +11.9644 +11.8940