Dollar steadies near two-month low as traders await inflation data

EUR=X +0.02%

DX-Y.NYB +0.16%

CL=F +1.64%

JPY=X +0.63%

GBP=X -0.07%

By Samuel Indyk and Jiaxing Li

LONDON, Aug 10 (Reuters) - The U.S. dollar held near a two-month low on Monday after Friday's weaker-than-expected labor market data, as investors awaited this week's inflation reports for more clues on the Federal Reserve's policy path.

Data released on Friday showed the U.S. economy unexpectedly lost jobs in July, while job gains for the previous two months were revised sharply lower. The report reduced expectations for a Federal Reserve rate hike next month and shifted attention to whether upcoming price data will confirm that inflation is continuing to ease.

The softer labor market reading has put additional focus on Wednesday's consumer price index report, as investors look for further signs on the direction of Fed policy.

"It (the labour market data) was a negative event for the dollar," said Francesco Pesole, FX strategist at ING.

"We think the bias remains negative this week but if we get a hot break on CPI, markets are going to be back to pricing in a rate hike as their baseline."

The futures market has cut the probability of a September move to about 44% from 67% a week earlier. U.S. Treasury yields also mostly held onto their declines after the jobs report weakened rate-hike expectations, with the benchmark U.S. 10-year note yield last at 4.647%.

A consensus estimate calls for core CPI to rise 0.2% month on month in July, while the annual rate is expected to ease to 2.5% from 2.6% in June. Producer price data on Thursday and retail sales figures on Friday are also due and will help shape the inflation outlook.

The euro was little changed at $1.1563, hovering near its strongest level since mid-June, while sterling was steady at $1.3496, below its three-and-a-half-week peak.

The yen weakened to 158.52 per dollar, extending a retreat from intervention-driven gains, though it remained well above the roughly 164 multi-decade low reached late last month.

According to data released on Friday by the Commodity Futures Trading Commission, speculators cut their bearish bets on the yen by the largest amount in more than 12 years. The data showed the net short position in the yen fell by $8.865 billion to $3.604 billion in the week to August 4, the biggest drop in absolute terms since March 2014.

The dollar index, which measures the currency against six major peers, was little changed at 99.62 after touching its lowest level since June 15 on Friday. The CFTC said speculators increased their net long position in the dollar in the latest week to the highest level since December 2022.

Eyes on Iran

Investors were also watching discussions aimed at reopening the Strait of Hormuz and the potential impact on energy prices, a closely watched route for global oil shipments.

Oil prices rose on Monday, with Brent crude futures last up 0.4% at about $84 a barrel, as uncertainty persisted over the reopening of the strait. Iran said a deal with Oman setting out new shipping lanes was in its final stages, but added that the United States still needed to meet other conditions, leaving the supply outlook unclear.

The Australian dollar was steady at $0.7071 ahead of the Reserve Bank of Australia's policy decision on Tuesday. The central bank is expected to keep its key rate at 4.35% for the rest of the year.

Elsewhere, the Chinese yuan held steady at 6.7440, near its strongest level in three and a half years, after data showed China's producer price inflation eased last month.

(Reporting by Samuel Indyk in London and Jiaxing Li in Hong Kong; Editing by Edwina Gibbs, Stephen Coates and Keith Weir)