TOKYO Reuters - The dollar hung near a three-week low to major peers on Monday as markets continued to wager that the Federal ReserveFederal Reserve didn't tighten as the U.S. economy was at risk of a recession.
The dollar index, which measures the currency against six counterparts, dropped 0.1% to 105.89, slipping back toward Friday's low of 105.53, a level not seen since July 5.
The dollar was moving in both directions at the end of last week after the PCE price index showed the fastest inflation since 2005, but it fell after the final University of Michigan report, closely watched by Fed policymakers, showed slipping consumer inflation expectations.
The monthly U.S. jobs report will be the main economic focus for this week.
The Fed will keep its current 75 basis-point pace of rate hikes at its next meeting on Sept. 21, with 69% odds of a half point increase, according to traders.
Markets look to be betting the Fed has done the lion's share of its task on inflation and will be receptive to slowing activity data, Taylor Nugent, a markets economist at NAB in Sydney, wrote in a client note.
The dollar bounced back to a six week low of 132.505 reached on Friday, dropping 0.22% to 132.925 yen.
The currency pair is sensitive to changes in the U.S. long-term Treasury yields, with the benchmark 10 year hovering around 2.67% after falling to the lowest since early April at 2.618% at the end of last week.
The euro was close to the middle of its range over the past week and a half, as it fell 0.07% to $1.0218.
The pound was about flat at $1.2186, after hitting the highest since June 28 at $1.2245 on Friday. Markets are laying 67% odds for a half-point rate hike on Thursday, compared to 33% probability of a quarter-point increase.
On Tuesday, the Reserve Bank of Australia is expected to deliver another half point increase, with traders seeing only a 16% chance of a quarter point tightening.
The Aussie dollar fell 0.19% to $0.69775 on Monday after touching a six week high of $0.7032 in the previous session.
If the market continues to hear what it wants from the Fed, the Aussie can easily spend more time above $0.70, according to NAB's Nugent.
Most of the price action in the coming months is still seen at $0.65 -- 0.70.