Investing.com – The US dollar rose on Monday, holding on to recent gains as traders digested more stimulus announcements from China ahead of comments from a number of Federal Reserve officials.
At 04:00 EST (09:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 102.817, just below last week’s peak, which was its highest level. Since mid-August.
Dollar eyes Fed spokesmen and retail sales
The dollar strengthened as traders reduced their bets on further deep interest rate cuts by the Federal Reserve at its remaining meetings this year following a strong jobs report and a rise in the CPI.
Markets will get another update on US consumer health on Thursday, with investors hoping the data will provide more insight into an economy that has become far more resilient than many expected.
Before that, investors will also get a chance to hear from a group of Fed officials in the coming days. The Federal Reserve Governor is expected to speak in Minneapolis later on Monday, and there is strong interest in what they have to say about the central bank’s interest rate outlook.
“We have a few speakers at the Fed this week who could confirm the idea of a 25 basis point Fed cut this year – which could be very negative for the dollar given current market rates,” analysts at ING said in a note.
Euro declines ahead of European Central Bank meeting
In Europe, trading fell 0.1% to 1.0928, ahead of Thursday’s policy-setting meeting by the Federal Reserve, which is expected to lead to another 25 basis point cut.
Euro zone business activity unexpectedly contracted in September, while inflation fell below the European Central Bank’s 2% target – data that suggests the euro zone economy is in worse shape than when policymakers last met.
“If the ECB does not cut interest rates in October, the market will think the central bank is behind the curve and will likely make a policy error,” said Mark Wall, chief European economist at Deutsche Bank.
It fell to 1.3062, at the start of a big week of economic data in the UK.
“The UK jobs release this week, especially Wednesday’s inflation data, could have a good impact on the pricing of the Bank of England’s easing cycle and the pound,” ING said.
The UK economy returned to growth in August after two consecutive months of no growth, but the September release is expected to fall to 1.9% year-on-year, below the Bank of England’s medium-term target.
Bank of England Governor Andrew Bailey said the bank could become “a little more active” if inflation data allows, and a fall of that size (from 2.2% in August) could allow for this week, ING added.
Yuan slides on deflation fears
It rose 0.2 percent to 7.0795, with the yuan affected by data showing lower-than-expected growth in China in September, while it recorded a contraction for the twenty-third month in a row.
Sentiment towards China was also affected by mixed signals on fiscal stimulus.
The Finance Ministry said at a weekend news conference that it plans to provide financial support, including issuing more debt and aid to provincial governments.
But the briefing left out key details about the planned measures, specifically their scope and timing, sparking limited optimism about further stimulus.
It rose 0.2% to 149.44, with the yen weakening slightly amid continuing doubts about the Bank of Japan’s ability to raise interest rates further, despite the Japanese holiday limited activity.