The dollar's monthlong recovery could be put to the test, first by Hurricane Gustav and at the end of the week by the U.S. jobs report.
Investors will also keep their eye on euro-zone data on growth, retail sales and manufacturing, as more signs of economic weakness may provide offsetting support for the dollar. Also on tap this week are policy-setting meetings by the European Central Bank and Bank of England.
During Monday's U.S. holiday, uncertainty persisted about Hurricane Gustav's impact on oil prices, while the dollar fell on the yen after news that Japanese Prime Minister Yasuo Fukuda resigned.
Sterling remained in sharp focus as it continued its dramatic underperformance, falling briefly through $1.80 to its lowest levels since April 2006 as confidence in the U.K. economy weakened further. The pound finished at $1.8019 from Friday's $1.8228.
The dollar finished Monday at 108.18 yen, down from Friday's 108.83, and the euro eased to $1.4606 from $1.4671.
If Hurricane Gustav, like Hurricane Katrina three years ago, were to cause an extended shutdown of offshore oil platforms and refining facilities in the Gulf of Mexico, crude-futures prices could soar. Given recent trends, this would send the dollar lower.
'The risk, of course, is that oil supplies decrease, sending spot and futures prices higher with a negative net impact for the dollar throughout the week,' said ABN Amro currency strategist Dustin Reid.
There is a feeling among traders that the extremely tight relationship between oil prices and the dollar during the past few weeks may have been a temporary phenomenon due to thin market conditions as many investors were on vacation.
'There's a chance that we shift back [this week] to trade on a wider breadth than just the price of oil,' said Tom Fitzpatrick, global head of currency strategy at Citigroup in New York. 'As we get into September, I think [investors] may take a step back and decide what they believe for the dollar' on a big-picture basis.
With this as a backdrop, analysts said the euro is likely to trade this week in a range between $1.45 and $1.49, while the dollar against the yen is likely to move between 107.50 yen and 110.75.
The dollar may also run into some trouble when the European Central Bank meets Thursday to make a decision on interest rates. Economists expect the bank will leave rates at 4.25%. The focus will be on whether bank President Jean-Claude Trichet further depresses hopes that the bank is considering rate cuts.
The yen's weeks-long trend of choppy, range-bound trading could remain intact, analysts say.
Dan Molinski |
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