By Rae Wee and Alun John
SINGAPORE/LONDON, July 10 (Reuters) - The dollar steadied on Monday, partly recovering from a knee-jerk reaction to Friday data showing U.S. job gains were the smallest in 2-1/2 years, while disappointing inflation figures in China weighed on the yuan and proxies.
The dollar index, which tracks the U.S. currency against a basket of major peers, was up 0.13% at 102.4 having fallen 0.87% on Friday after U.S. nonfarm payrolls increased 209,000 in June, missing market expectations for the first time in 15 months.
While details in the employment report reflecting persistently strong wage growth underscored market pricing of a further rate hike later this month, the data helped reassure markets that an end to the Federal Reserve's programme of rate hikes is at least near, even if once-expected cuts later in 2023 now seem unlikely.
The dollar's Friday slide and Monday rebound were broadly based.
The dollar rose as much as 0.55% against the Japanese yen and was last up 0.06% at 142.31 having slid nearly 1.3% on Friday, and the euro was last down 0.08% at $1.0953 after a 0.7% Friday jump.
The dollar/yen pair is particularly sensitive to U.S. bond yields, which paused their recent march higher after the data, as interest rates in Japan are anchored near zero.
"It's a bit of an unwind from the over-reaction that we saw on Friday. There was an over-reaction to the non-farm payrolls report, so it doesn't surprise me that the yen's weakening today," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.
Sterling was a bigger mover, falling nearly 0.5% on Monday to $1.2780 having surged 0.79% the previous session to a 15-month high of $1.2850.
For markets focused on the outlook for central bank policy, particularly the Fed, the focus now turns to U.S. inflation data due on Wednesday, where expectations are for core CPI to have risen 5% on an annual basis in June.
Norway's crown, the second weakest performing currency in the G10 this year, strengthened after data showed core inflation continued to rise in June and hit a fresh record.
The euro was last down 0.88% against the crown at 11.544, its lowest since mid June.
"The unfavourable trend for core inflation and weak krone will keep pressure on the Norges Bank to deliver another larger 50bps hike at their next policy meeting on 17th August," analysts at MUFG wrote in a note, using the currency's name in Norwegian.
" More decisive action from the Norges Bank will offer more support for the krone but we are not yet convinced that conditions are in place for a sustainable rebound from deeply undervalued levels."
The situation is different in China, however, where data on Monday showed China's factory-gate prices fell at the fastest pace in 7-1/2 years in June and consumer inflation was at its slowest since 2021, fuelling hopes for further support measures from Chinese authorities.
The weak data dragged down the Australian and New Zealand dollars, which are often used as liquid proxies for the Chinese yuan.
The Aussie fell 0.72% to $0.663, while the New Zealand dollar slid 0.4% to $0.6185.
The U.S. dollar climbed about 0.1% against the offshore yuan to 7.239.
"The softer CPI is still reflecting weak domestic demand while PPI deflation underscores the strains on factories," said OCBC currency strategist Christopher Wong.
"(It's) basically saying that China needs stimulus support."
(Reporting by Rae Wee; Editing by Jamie Freed, Ed Osmond and Emelia Sithole-Matarise)
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2023-07-10 12:20:36Z
CBMiUmh0dHBzOi8vZmluYW5jZS55YWhvby5jb20vbmV3cy9mb3JleC1kb2xsYXItc3RlYWRpZXMtaW5mbGF0aW9uLWRhdGEtMTIyMDM2ODg1Lmh0bWzSAVpodHRwczovL2ZpbmFuY2UueWFob28uY29tL2FtcGh0bWwvbmV3cy9mb3JleC1kb2xsYXItc3RlYWRpZXMtaW5mbGF0aW9uLWRhdGEtMTIyMDM2ODg1Lmh0bWw
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