Dollar Index Edges Up As Markets Eye Vote And Fed

Currency market movements during the week ended November 1 were dominated by uncertainty surrounding the U.S. Presidential election as well as the Fed’s impending interest rate review. The U.S. Dollar gained against the British pound, the Australian Dollar, the Japanese yen, the Canadian Dollar, the Swedish Krona, and the Swiss franc but slipped against the euro during the week spanning October 28 to November 1.

The Dollar Index, a measure of the Dollar’s strength against a basket of currencies comprising the euro, the British pound, the Japanese yen, the Canadian Dollar, the Swedish Krona, and the Swiss franc closed trading at 104.28 on November 1 versus 104.26 a week earlier. The week’s trading range was much wider, oscillating between the high of 104.64 recorded on Tuesday and the low of 103.68 recorded on Friday. The Dollar’s strength came amidst mixed economic data released during the week.

Data released on Tuesday showed the number of job openings decline to 7.44 million in September from a downwardly revised 7.86 million in August and below market expectations of 7.99 million.

Advance estimate released by the U.S. Bureau of Economic Analysis on Wednesday showed the American economy expanding at an annualized 2.8 percent in the third quarter of 2024, below the 3 percent growth achieved in the second quarter. Markets had anticipated a growth of 3 percent in the recent quarter also.

In the PCE-based inflation readings released on Thursday, the annual/monthly PCE price Index matched market expectations. Though the month-on-month core component also matched market expectations, the core component on a year-on-year basis did not decline as was expected by the markets.

Data released by the U.S. Bureau of Labor Statistics on Friday morning showed addition to non-farm payrolls declining to 12 thousand in October from 223 thousand in the previous month. Markets had expected an addition of 113 thousand given the effect of hurricanes as well as the strike at Boeing. The unemployment rate was however steady at 4.1 percent as expected.

The ISM Manufacturing PMI released on Friday unexpectedly declined to 46.5. Markets had expected the same to rise to 47.6 from 47.2 in the previous month.

Despite the mixed economic data, markets continued to expect a rate cut of 25 basis points in the Fed review on November 7. Amidst the election frenzy, yields on ten-year U.S. treasuries oscillated between 4.388 percent and 4.198 percent over the course of the week.

The U.S. dollar slipped 0.38 percent against the euro during the week ended November 1 amidst a larger than expected spike in inflation in the Euro Area that boosted the euro. From the level of 1.0793 on October 25, the EUR/USD pair rallied to 1.0834 by November 1. The weekly trading ranged between the low of 1.0768 recorded on Tuesday and the high of 1.0905 touched on Friday.

Data released on Thursday had shown annual inflation in the Euro Area accelerating to 2 percent in October, from 1.7 percent in September which was the lowest level since April 2021. Markets which had expected the reading to increase to 1.9 percent only are now gearing for a cautious interest rate strategy by the European Central Bank.

Strong rate cut expectations from the Bank of England amidst a larger-than-expected decline in inflation caused the sterling to drop 0.25 percent against the greenback during the week ended November 1. The GBP/USD pair declined to 1.2926 on November 1, from 1.2959 a week earlier. The sterling’s weekly trading range was between $1.3043 recorded on Wednesday and $1.2841 recorded on Thursday. Bank of England is widely expected to deliver a 25-basis points rate cut on Thursday.

A larger-than-expected decline in consumer price inflation contributed to the Australian Dollar’s decline against the greenback during the week ended November 1. Data released by Australian Bureau of Statistics on Tuesday showed the monthly Consumer Price Index Australia increasing by 2.1 percent year-on-year in September 2024, versus market forecasts of 2.4 percent and August’s level of 2.7 percent. However, the Reserve Bank of Australia is not seen cutting rates in the review on Tuesday.

The AUD/USD pair tumbled 0.67 percent during the week spanning October 28 to November 1. From the level of 0.6603 recorded on October 25, the pair dropped to 0.6559 in a week’s time. The pair touched a high of 0.6624 on Monday and a low of 0.6534 on Wednesday.

The USD/ JPY pair rallied 0.45 percent during the week ended November 1 as it closed at 152.98 versus 152.30 a week earlier. The pair ranged between the high of 153.87 on Monday and the low of 151.77 on Friday. The yen plunged in the aftermath of the elections in Japan that saw Prime Minister Shigeru Ishiba’s coalition lose its parliamentary majority and triggering political instability. However, a hawkish message from Bank of Japan limited losses.

Anxiety ahead of the closely fought presidential election in the U.S. and the potential Fed rate cut continue to hold formidable influence over the currency market. The Dollar Index has dropped to 103.66 from the level of 104.28 recorded at close on Friday.

Amidst the Dollar’s weakness, the EUR/USD pair rallied to 1.0905 whereas the GBP/USD pair increased to 1.2965. Ahead of the Reserve Bank of Australia’s interest rate decision on Tuesday, the AUD/USD pair has rallied around half a percent to 0.6602. Ahead of the release of the Bank of Japan’s meeting minutes on Tuesday, the USD/JPY pair slipped to 151.78.

With elections getting closer and closer, the focus of the currency market would soon be on potential post-election volatility, Federal Reserve’s rate decision as well as its forward guidance.

Forex News