U.S. Dollar Strengthens as Key Economic Reports Loom
The U.S. dollar rose on Wednesday in anticipation of U.S. interest rate estimates, while the euro lost ground. The dollar has seen a surge in demand since last week’s strong Friday payrolls report led the market to largely dismiss the option of another 50 basis point cut for November in favor of a much more traditional 25 basis point reduction.
According to CME’s FedWatch tool, investors currently estimate an 85% chance of a quarter basis point cut, with a smaller possibility that the Fed will keep rates unchanged.
Attention is now focused on the upcoming release of the minutes from the Fed’s September meeting, scheduled for later in the session.
During this meeting, the Fed decided to cut rates by 50 basis points, and the minutes are likely to reveal the rationale behind this decision. However, with policymakers having been active recently, it’s debatable whether the minutes will offer any new information.
On Thursday, the consumer price index for September is set to be released, which is also expected to influence the Fed’s outlook.
Euro Slips Ahead of ECB Meeting
In Europe, the EUR/USD was down 0.2% to 1.0962, with the euro depreciating on the back of better-than-expected German trade data, which raised hopes of a recovery in the eurozone’s largest economy.
Exports in Germany rose by 1.3% in August on month-on-month levels, according to official data revealed Wednesday, defying estimates of a 1.0% drop.
The European Central Bank will meet next week and is expected to ease monetary policy again, after cutting rates twice this 2024, due to weakening economic growth and easing inflationary pressures.
“A cut is very likely and it won’t be the last, the pace will depend on how the fight against inflation progresses,” ECB policymaker Francois Villeroy de Galhau said in an interview on Wednesday.
GBP/USD fell 0.2% to 1.3081, not far from Monday’s three-week low of 1.3059.
“The British press is starting to reach a feverish pitch with its speculation about what Chancellor Rachel Reeves will present in her first budget on Oct. 30,” analysts at ING mentioned, in a note.
“Investors remain on the lookout for any signs that the U.K. Gilt market is once again getting nervous about potential spending plans.”
Kiwi Dollar Falls After Rate Cut
The New Zealand dollar (NZD/USD) dropped 0.9% to 0.6085, reaching its lowest level since August 19 after the Reserve Bank of New Zealand cut interest rates by 50 basis points. The central bank left the door open for further aggressive monetary easing, heightening concerns over future policy moves.
USD/JPY rose 0.2% to 148.53, after touching a seven-week high of 149.10 on Monday. The yen is expected to face volatility in the coming weeks as Japan prepares for an election on October 27, ahead of the Bank of Japan’s monetary policy meeting. Additionally, the U.S. presidential election next month is expected to add further uncertainty to the markets.
USD/CNY increased by 0.1% to 7.0643, following a 0.6% gain in the previous session. Trading resumed in full force after the week-long Golden Week vacation, pushing the pair higher.