Markets have been recovering from the shock of Friday's U.S jobs report, which showed that nonfarm payrolls surged to 517,000 in January, pointing to a resilient labour market. The report wrongfooted traders that were banking on an imminent pause in the Fed's rate-hike cycle and gave the U.S. currency a leg up, though it gave back some gains in Asia trade. The dollar index , which measures the greenback against a basket of six rivals, made a brief breach of Monday's one-month highs, and was last trading at 103.52, roughly flat on the day. The euro fell 0.1% to $1.0695, having fallen earlier in the day to its lowest since Jan. 9. "Markets were really caught long on this whole risk-on move that was occurring at the beginning of the year," said Monex's Harvey.
"There's been a bit of a sudden realisation for markets that the central banks are casting the right message here - that policy is going to have to remain restrictive for a bit longer and the idea of an immediate easing in the second half of the year isn't necessarily a foregone conclusion."
U.S. interest-rate futures show that markets are expecting the Fed funds rate to peak just above 5.1% by June, compared with expectations of a peak below 5% prior to Friday's jobs report. Sterling was last 0.1% higher against the dollar at $1.20275, after tumbling to a one-month low of $1.2006 in the previous session. Investors are looking for further commentary from central bankers this week following what was viewed as a dovish outcome of Bank of England's meeting last week.
In Asia, the Japanese yen attempted to make back Monday's losses, with the dollar-yen pair down 0.6% at $131.78, moving away from Monday's one-month low of 132.90 per dollar. Data on Tuesday showed that Japan's real wages rose in December for the first time in nine months, though uncertainty remains over whether pay hikes will continue to sustain the country's economic recovery. A newspaper report on Monday said Japan's government has sounded out Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya to succeed incumbent Haruhiko Kuroda as central bank governor. Amamiya is considered by markets as more dovish than other contenders. "I don't think the BOJ will reverse monetary policy," said Tina Teng, market analyst at CMC Markets, on market hopes the central bank will abandon its yield curve control policy once a new governor takes office. "There are still economic concerns, there are still recessionary risks." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Rae Wee and Susan Mathew; Editing by Muralikumar Anantharaman, Kenneth Maxwell and Arun Koyyur)
