Dollar on track for weekly gain; next week's payrolls looms large

The U.S. dollar held largely steady Friday, on course for a fourth straight week of gains, underpinned by falling expectations of aggressive Fed rate cuts as well as heightened political uncertainty.

At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower at 103.880, still on track for a weekly gain of around 0.6%.  Dollar steadies ahead of payrolls

The dollar has steadied Friday after a slight fall in the previous session on the back of lower U.S. Treasury yields.

However, it has generally been in demand for much of the month as reasonably healthy economic data has seen the market scale back expectations of more hefty rate cuts by the Federal Reserve in the near future.

This relative calm could disappear next week, with a highly consequential U.S. payrolls report due next Friday.

However, ahead of this release, the focus may well be on the upcoming US presidential election, as market bets for a possible return of Donald Trump ramp up.

“The polls are clearly telling us the election is too close to call, but markets and betting odds are leaning increasingly in favour of Trump,” said analysts at ING, in a note. 

“This may be due to the experience of the past two elections, where Trump was underestimated by polls, but also by greater hedging demand for a Trump presidency, which is seen as a more impactful macro/market event due to protectionism, tax cuts, strict migration policies and risks to the Fed independence.” ECB to consider large cut?

In Europe, EUR/USD edged marginally higher to 1.0833, on track for a weekly loss of more than 0.3%.

The German Ifo business climate rose slightly in October, data showed Friday, but sentiment remains weak after eurozone business activity stalled again this month.  

The ECB has already cut rates three times this year, each time by 25 basis points, but expectations are growing that the central bank will consider a larger reduction at its next meeting.

“Bundesbank president Joachim Nagel was asked on two separate occasions during his stay in Washington whether he would consider a 50bp cut in December, and both times, he refrained from explicitly pushing back,” said ING. “Nagel is one of the most hawkish members of the Governing Council and would have probably answered with a clearer ‘no’ only a month ago.”

GBP/USD traded largely unchanged at 1.2972, heading for a weekly loss of around 0.5%, but has also edged away from a two-month low seen on Wednesday. 

Bank of England Governor Andrew Bailey speaks on Saturday in Washington, and traders will be looking for any comments on likely future policy after he warned earlier this month that the central bank could become “a bit more activist on rate cuts” if there’s further good news on inflation. Yen looks to weekend's election

USD/JPY rose 0.1% to 152.02, steadied near three-month highs, with the pair headed for a 1.6% gain this week - its fourth consecutive week of gains. 

Sentiment towards Japanese markets was largely on edge before the general election on Sunday, where local polls showed an alliance led by the ruling Liberal Democratic Party could struggle to reach a majority.

This could lead to Prime Minister Shigeru Ishiba facing an uphill battle to enact more economic reforms.

USD/CNY edged higher to 7.1209, trading in a tight range with a meeting of China’s National People’s Congress, initially slated to take place in late-October, now appearing to be delayed to November.

 

Source: Investing.com