Dollar slips, taking a breather after last week’s advance a day ahead of CPI test

The U.S. dollar slid on Monday, eating into a chunk of its explosive post-jobs report rally to end last week. Currency market participants were also looking ahead to critical U.S. inflation readings and a heavy slate of central bank speeches. 

The U.S. dollar index, which tracks the greenback against a basket of six major peers, dropped 0.6% to 101.68.

The world’s premier currency posted its best weekly performance since early October on Friday, largely on the back of a surge on that day. That advance was partly driven by a blockbuster U.S. jobs report. 

As per the U.S. Bureau of Labor Statistics (BLS), total nonfarm payroll employment rose by 165k last month, surging past the consensus estimate of 65k. Employment for August and September were revised upward by a combined 84k. Meanwhile, the unemployment rate ticked down to 4.1% from 4.2% in September.

With inflation running well above the Fed’s long-term 2% target, the nonfarm payrolls reading suggested that the labor market remained very strong, theoretically giving the central bank more headroom to hike interest rates. Higher rate environments tend to strengthen the dollar.

The spotlight is now on the U.S. consumer price index (CPI) and producer price index (PPI) reports for October, due on Tuesday and Friday, respectively. The data will be closely perused for further cues on the Fed’s future rate actions. The CPI will also be complicated by the fact that the BLS will not release standard 12-month percentage change figures due to the U.S. government shutdown in 2025.

Before the Friday rally, the dollar had slipped last week following a sweeping Democratic victory in the U.S. midterm elections on Tuesday. Concerns that the party could pursue greater regulation of the artificial intelligence industry and attempt to slow down the proliferation of massive data centers weighed on the greenback, as any curtailment of the AI boom could hit U.S. economic growth and take the shine off the dollar. 

"With Democrats having ’flipped’ several governor seats and many U.S. state legislatures in the midterm election, new laws and regulations that may slow data center expansion in the U.S. in 2027, and thus adversely affect up to half of planned capacity expansions. This could be a factor that slows U.S. growth in 2027 (all else equal) and helps put a top in for the USD," Thierry Wizman, global FX and rates strategist at Macquarie, said.

The dollar’s Monday slide provided vital breathing room for other major currencies.

The euro climbed 0.7% to $1.1224. However, the single currency’s upside remains tethered to a distinctly cautious mood across the continent.

Eurozone traders are holding their fire ahead of their own macroeconomic gauntlet. The continent’s rate trajectory hinges on impending Q3 regional GDP figures, updated European Central Bank (ECB) economic forecasts, and a wave of speeches from ECB policymakers trying to navigate stalling growth and imported inflation.

Meanwhile, the Japanese yen firmed to 157.95 per dollar, finding its footing after being battered on Friday.

The modest recovery reflected a tentative stabilization in global risk sentiment, though the yen remained highly sensitive to any hawkish surprises from Tuesday’s U.S. CPI report that could further widen the punishing interest-rate differential between Washington and Tokyo.

Ayushman Ojha and Pranav Kashyap contributed to this article