By Peter Nurse – The dollar weakened in early European trade Monday, handing back some of its recent gains after Friday’s nonfarm payrolls report eased concerns about an early move by the Federal Reserve to rein in its accommodative monetary policy.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 92.317, after falling around 0.3% on Friday from a three-month high.

USD/JPY was up 0.1% at 111.13, EUR/USD edged down to 1.1856, GBP/USD rose 0.1% to 1.3831, while the risk-sensitive AUD/USD was down 0.1% at 0.7516, ahead of Tuesday’s Reserve Bank of Australia meeting, which could see a decision on the fate of its bond purchase program and yield target.

The dollar strengthened for large parts of last week on rising expectations of an early move by the Federal Reserve to normalize monetary policy, given surging inflation and reasonably strong U.S. employment data.

However, while Friday’s jobs report said that nonfarm payrolls grew by a higher-than-expected 850,000 in June, the unemployment rate was also higher than expected and the pace of hourly earnings growth slowed, easing concerns that the central bank would raise interest rates sooner than expected.

This report “would probably not convince the Federal Reserve to change its current policy," said David I. Kass, Clinical Professor of Finance with the Robert H. Smith School of Business at the University of Maryland.

Trading ranges are likely to be limited Monday, with the U.S. on holiday, and attention will likely turn to Wednesday’s release of the minutes of the Fed’s June meeting, when officials opened talks on tapering bond-buying and pointed to interest rate increases coming sooner than previously guided.

Elsewhere, USD/CNY fell 0.2% to 6.4597 after a private study showed a slowing of growth in China’s services sector, with the Caixin services purchasing managers index falling to 50.3 in June, lower than May’s 55.1 figure, and a 14-month low.

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USD/TRY fell 0.1% to 8.6690 ahead of the release of Turkey’s latest inflation data. This is expected, later Monday, to show inflation rose an annual 16.8% in June, up from 16.6% in the previous month, according to the median estimate in a Bloomberg survey of 18 analysts. Such a result would limit the chances of a cut in interest rates at the next central bank meeting.

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