The U.S. dollar slips from its three-month highs on Thursday, easing slightly as investors assess recent economic data and prepare for a more measured pace of interest rate cuts by the Federal Reserve. Despite this dip, the dollar remains close to its highest levels since July, supported by expectations around the upcoming U.S. presidential election and strong economic indicators.
At 04:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six major currencies, was 0.2% lower at 104.095, indicating that the dollar slips from its peak but remains strong.
Beige Book and Economic Data Support the Dollar
The dollar slips slightly, yet it continues to find support in recent U.S. economic data that suggests the economy is holding firm. The Federal Reserve’s Beige Book, released Wednesday, indicated that economic activity has remained largely unchanged since September, and the labor market continues to show resilience. These factors suggest that the Federal Reserve may adopt a slower pace of interest rate cuts moving forward.
Recent data, including the September jobs report and retail sales figures, also points to the strength of the U.S. economy. These numbers have bolstered confidence in the dollar, keeping it close to its three-month highs despite its slight slip. Market participants are pricing in approximately 50 basis points of cuts for the remainder of the year, with a 25 bps cut likely in November.
Another factor contributing to the dollar slips narrative is the proximity to the U.S. presidential election. As the election draws near, investors are positioning cautiously, especially with Republican candidate Donald Trump performing well in the polls. ING analysts noted that volatility is expected to rise as the election approaches, and a strong performance by Trump could help the dollar remain in demand.
Euro Gains Following PMI Data
Across the Atlantic, the euro gained ground against the dollar on Thursday. EUR/USD climbed 0.2% to 1.0797, as traders digested mixed PMI data from the eurozone. Although France’s composite PMI slipped to 47.3 in October, Germany’s PMI offered some relief, rising to 48.4 from 47.5 the previous month.
While the data showed contraction (PMI readings below 50), the improvement in Germany, the largest economy in the eurozone, helped lift the euro. Still, with inflation subdued and business confidence low, the European Central Bank (ECB) is expected to continue its easing measures, having already cut rates three times this year.
Analysts predict that the EUR/USD pair could trade within a 1.0765 to 1.0850 range in the near future, with the possibility of further gains if the ECB’s policies prove effective.
British Pound and Japanese Yen See Movement
The British pound also gained on Thursday, rising 0.3% to 1.2961 after hitting a five-week low. Traders anticipate the release of the UK’s October PMI data, which could provide further support for the currency if it surpasses expectations.
In Japan, the yen saw a slight recovery. USD/JPY fell 0.4% to 152.19 after Japanese officials voiced concerns about the yen’s recent weakness, warning against “one-sided” moves in the currency market. This sparked fears of possible intervention, adding support to the yen.
Yuan Recovers Amid China’s National People’s Congress
Finally, in China, the yuan recovered slightly after falling to a near two-month low earlier in the week. USD/CNY dropped 0.2% to 7.1111, as traders turned their focus to the upcoming National People’s Congress meeting, which could provide further clarity on fiscal spending and support for the yuan.
In conclusion
While the dollar slips slightly from its three-month highs, strong economic data and the approaching U.S. presidential election continue to provide support for the greenback. The euro has gained on mixed PMI data, while both the British pound and Japanese yen are seeing increased movement.
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