Dollar slips, with traders already eyeing Friday jobs data

By Karen Brettell

NEW YORK, Aug 31 (Reuters) - The dollar edged lower on Monday in a relatively subdued session, as the futures market raised odds on a September interest-rate hike following last week's hawkish remarks from Federal Reserve Chairman Kevin Warsh.

The market is already gearing up for key U.S. jobs data due later this week following Warsh's commentary. The July jobs release showed an unexpected drop in hiring, reducing expectations that the Fed would raise rates.

Friday's report on August hiring is expected to show that employers added 55,000 jobs during the month, according to the median estimate of economists polled by Reuters. 

“If we get an outright decline in jobs, I don't see how the Fed can raise interest rates. I don't think that they've ever raised interest rates after the economy had back-to-back job losses,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

The euro rose 0.27% to $1.1615, while sterling strengthened 0.07% to $1.3544. Both currencies remained on track for a second consecutive month of gains.

The dollar index, which measures the U.S. currency against six major peers, was down 0.24% at 99.43 after hitting 99.73 on Friday, its strongest since August 17.

The index remains on track for a second consecutive monthly decline after U.S. Treasury bond-buyback plans earlier in the month revived debasement trades.

The U.S. central bank will "have work to do" if policymakers do not get the confidence they need that inflation is heading down to 2%, Warsh said on Friday, in his clearest indication yet that further tightening may be needed to curb price pressure.

"Warsh's prepared remarks seemed designed to lift rate-hike expectations, rebalance the September debate towards the hawks and rebuild his inflation-fighting credibility," said Elwin de Groot, head of macro strategy at Rabobank.

The Fed next meets on September 15-16, with fed funds futures traders currently pricing in 64% odds of a September rate hike, up from around 35% before Warsh’s comments on Friday.

August’s producer price inflation report is due on September 10 and consumer price inflation for the month is scheduled for September 11.

Warsh on Monday told G20 finance leaders that the world is seeing a global investment surge that is helping to power growth, reversing past savings gluts that kept capital idle due to a shortage of investment opportunities.

YEN WEAKNESS

The dollar's renewed strength has pressured the Japanese yen after it surrendered much of the gains made following July's intervention. 

The Japanese currency rose on Monday after Treasury Secretary Scott Bessent said he believes Japan's government and central bank will take action that strengthens the yen, suggesting a strong chance of a Bank of Japan interest rate hike in September.

The yen strengthened 0.2% to 159.77 per dollar, after sliding beyond 160 per dollar on Friday.

Renewed tensions in the Gulf drove oil prices higher, with Brent crude futures last up more than 2%.

(Reporting by Karen Brettell, Sophie Kiderlin and Jiaxing Li in Hong Kong; Editing by Ros Russell, Nick Zieminski and David Gaffen)