DOLLAR DECLINES AFTER HITTING 7-MONTH PEAK FRIDAY; ODDS OF FED HIKE IN DECEMBER SOAR

The greenback slipped lower against the other major currencies on Monday, as traders locked in profits after the greenback hit a huge seven-month peak on Friday after the release of strong U.S. employment data.

On Monday the dollar was lower against the euro, with EUR/USD up 0.40% at 1.0783, off Friday’s seven-month trough of 1.0701.

The greenback strengthened broadly after the Labor Department reported that the U.S. economy added 271,000 jobs last month, beating the expected 180,000 - the largest increase since December. The unemployment rate dipped to a seven-and-a-half year low of 5.0%.

The strong data increased chances for the Federal Reserve to raise borrowing costs at its December meeting, a move that would make the dollar more appealing to yield-seeking investors.

USD/JPY rose 0.22% to trade at 123.43 - the highest since August 21.

The dollar was lower against the pound and the Swiss franc, with GBP/USD adding 0.29% to 1.5097 and with USD/CHF shedding 0.4% to 1.0025, pulling away from Friday’s eight month highs of 1.0075.

Bond yields rose on Fed expectations.

Treasury yields continued to edge higher in Europe having surged on Friday. The key 2-year yield, the most sensitive to a near-term rate hike, was at a 5-1/2-year high.

German Bund yields were pushed higher too.

Portuguese government bond yields hit a 10-week high, as leftist parties agreed to form an alternative government in their attempt to oust the center-right in a vote this week. The yield (or interest rate) on 10-year Portuguese bonds has climbed from 2.67% to 2.77%, a ten-week high. That is not a major move, but a sign that investors are anxious about events in Lisbon.

There was also uncertainty in Spain, as on Monday Catalan separatists are expected to approve in the local parliament a motion saying the process to split the northeastern region from Spain has started.

Credit: mql5.com

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DOLLAR EXTENDS LOSSES FRIDAY AFTER FED STANDS PAT

On Friday the dollar extended its losses against the yen in a fluctuating Asia trade, underscoring investors’ wariness over softness in the global economy and markets given the Federal Reserve’s decision to keep interest rates unchanged.

In a highly-anticipated decision Thursday, the Federal Reserve left short-term interest rates unchanged after weeks of hot market-churning debate over whether the central bank would end an era of near-zero rates.

Fed Chairwoman Janet Yellen said concerns about inflation, China and financial markets contributed to the Fed’s decision to stand pat.

The selling of the dollar has also been accelerated by a sharp decline in the benchmark Nikkei Stock Average midday, which deepened the risk-averse mood and spurred buying into the perceived safety of the Japanese currency. The Nikkei was last down 1.96% midday.

USD/JPY was last at 119.71, compared with 120.03 late Thursday in New York, tracking the overnight dollar selling that brought the U.S. currency from around 120.90 before the Fed concluded its two-day policy meeting.

The greenback was slightly stronger against the euro, which declined to $1.1401 from $1.1434 late Thursday, after hitting its three-week high of $1.1441 overnight.

The shared currency was at ¥135.75 from ¥137.22 earlier.

Credit: mql5.com

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