Dollar Holds Near Recent Highs Amid Tepid Currency Moves and Disappointing Chinese Stimulus

The U.S. dollar hovered close to recent highs on Monday as investors reacted to underwhelming weekend stimulus announcements from China, while the euro continued its decline ahead of a key European Central Bank (ECB) meeting this week.

The euro fell 0.1% to $1.092850, marking its 11th drop in 12 sessions as markets priced in a likely 25 basis point interest rate cut from the ECB at its upcoming October 17 meeting. Data suggests a continued slowdown in eurozone activity, contributing to the euro’s extended losses.

Muted Currency Movements
Currency trading was subdued due to the closure of Japanese markets for Sports Day, and the U.S. bond market being shut for Columbus Day. The pound remained close to a one-month low, trading at $1.30595.

The dollar index, which measures the greenback against a basket of major currencies, was slightly above 103, inching toward last week’s peak, its highest level since mid-August. This movement comes as traders scale back expectations for significant rate cuts by the Federal Reserve for the rest of the year.

Last week saw only slight shifts in major currencies: the yen and euro both fell around 0.3%, sterling dropped 0.4%, and the dollar index climbed 0.4%.

Fed Rate Cut Expectations
Despite hotter-than-expected U.S. inflation data last week, alongside higher weekly jobless claims, markets still anticipate the Federal Reserve will cut rates by 25 basis points in both November and December. Attention will now shift to key U.S. data releases on Thursday, including retail sales and jobless claims, as well as the ECB’s policy review.

Later today, Fed Governor Christopher Waller is scheduled to speak. Waller, who supports a larger rate cut due to concerns that price increases are falling short of the Fed’s target, may provide further insights into the central bank’s policy direction.

Disappointing Chinese Stimulus Measures
In Asia, trading was heavily influenced by China’s fiscal stimulus update, which left investors unimpressed. China’s yuan fell 0.3% against the dollar, while the Australian dollar, which is closely tied to China’s economic performance, also dropped 0.3% to $0.67320.

China announced plans to “significantly increase” government debt issuance to support low-income households, bolster the property market, and strengthen state banks’ capital. However, the lack of specific details on the scale of the stimulus led to market disappointment.

The yuan has declined nearly 1% against the dollar since late September, when the People’s Bank of China initiated the most aggressive stimulus measures seen since the pandemic.

Other Currency and Digital Asset Movements
The New Zealand dollar fell 0.3% to $0.60895, extending losses from last week’s 0.8% drop after the central bank reduced rates by half a percentage point and signaled more cuts may follow.

In digital currencies, Bitcoin firmed 1.8% to a ten-day high of $64,104, while Ether climbed 3.1% to a two-week high of $2,546.35.