FOREX-Light wind in dollar's sails after bumper US payrolls

Source: Yahoo! Finance

SINGAPORE, April 8 (Reuters) - The dollar was firm but sluggish in Asian trading on Monday as investors looked ahead to U.S. inflation data after the big payrolls number last week, and as Treasury yields reached for December highs.

U.S. consumer price inflation for March on Wednesday and a European Central Bank (ECB) policy meeting on Thursday will be the main economic markers for the big global currencies this week.

Those follow a week of vacillation as traders watched Japanese authorities talk their currency higher, and as U.S. services, the closely watched employment report on Friday and a bunch of Federal Reserve speakers sent mixed signals on rates.

The dollar was just marginally higher, with the Swiss franc, Canadian dollar and Japan's yen the main losers among the six currencies in the dollar's trade-weighted index.

The dollar "can remain supported this week if the U.S. CPI for March remains solid as we expect," analysts at Commonwealth Bank of Australia said.

In the United States, a tight job market and limited progress on inflation in the last couple of months have amplified calls among top officials, including Fed Chair Jerome Powell, to be "patient" as they approach the decision on when to cut rates.

The March consumer price index is key for market participants seeking evidence that factors that made inflation accelerate more than expected at the start of the year are abating.

Yields on U.S. debt have meanwhile pushed higher. At the short end of the curve, the two-year yield, which reflects interest rate move expectations, hit 4.7820%, the highest since Nov. 28.

Following the jobs data, the U.S. rate futures market has reduced the odds of a June rate cut to 50%, down from 66% late on Thursday, the CME's FedWatch tool showed.

The dollar's biggest gains this year have been against the two big funding currencies for carry trades, the yen and Swiss franc. Both are down roughly 7% each versus the dollar this year.

The Japanese yen weakened 0.11% to 151.79 per dollar. Yen futures data from CFTC showed non-commercial short positions had climbed to 143,230 contracts on April 2, the largest since December 2023.

"The upside in dollar-yen is limited and the daily range is very low because of the risk of intervention by Japanese authorities," said Nomura currency strategist Jin Moteki.

That low volatility and the widening spreads between dollar and yen yields was spurring more carry trades, leading to increased short positions on yen, he said.

The euro was flat at $1.0834, while sterling was last trading at $1.2631, down 0.08% on the day.

The base case for the ECB is to hold rates this week and possibly reinforce the possibility of a cut in June. But while the ECB is increasingly confident that inflation is heading back to its 2% target, it has remained vague about further easing.

The kiwi dipped initially but was subsequently flat at $0.6016 heading into a Reserve Bank of New Zealand (RBNZ) policy meeting on Wednesday. It has shed 3.5% in three weeks, however, as markets bet the recent weakness in economic data could make the RBNZ dovish.

Westpac analysts said the scenario of "a less dovish Fed contrasting with a more dovish RBNZ" could potentially push the currency to November lows around $0.59.

Chinese markets reopened after holidays on Thursday and Friday to more weakness in the currency, keeping the yuan close to last week's four-and-a-half-month low.

Gold prices hit a record high, and are up 16% since mid-February.

In cryptocurrencies, bitcoin last rose 2.72% to $69,500.82.

(Reporting by Vidya Ranganathan; Editing by Christopher Cushing and Jamie Freed)