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The U.S. dollar held steady at high levels on Tuesday, bolstered by recent U.S. economic data that suggests resilience in the economy and anticipation of a slower pace of rate cuts from the Federal Reserve. Meanwhile, the Japanese yen remained near a three-month low due to post-election political uncertainty.
As of 05:20 ET (09:20 GMT), the Dollar Index traded slightly lower at 104.122 but maintained a substantial 3.6% gain for the month, marking its strongest monthly performance in over two years.
Anticipation Builds for Key Economic Reports
This week’s major U.S. data releases, including September’s JOLTS job openings data and U.S. GDP on Wednesday, will provide a clearer picture of economic health. However, investors are particularly focused on Thursday’s core Personal Consumption Expenditures (PCE) price index — the Fed’s preferred inflation gauge — and Friday’s monthly jobs report. These reports are expected to shape the Fed’s future rate decisions.
Political dynamics have also played a role, with increasing confidence that Republican candidate Donald Trump may secure victory in next week’s U.S. presidential election. Market participants view Trump’s policies on tariffs, taxes, and immigration as potentially inflationary, which could support the dollar.
Improving Consumer Sentiment in Germany
In Europe, EUR/USD edged up 0.1% to 1.0817, aided by a more optimistic German GfK consumer sentiment index, which improved to -18.3 from -21.0 the previous month. However, Germany’s economic outlook remains bleak; the DIHK revised its growth forecast, predicting a 0.2% contraction in 2025, marking the third consecutive year of stagnant GDP.
Following three 25-basis-point rate cuts this year, the European Central Bank (ECB) may face pressure to implement a larger reduction in its upcoming meeting to counteract the weak growth.
Pound Steady Ahead of U.K. Budget Announcement
GBP/USD rose 0.1% to 1.2982 as the market awaits Wednesday’s Budget release from the new Labour government. Meanwhile, annual shop price deflation in the U.K. slowed to 0.8% in October, a welcome sign for households but potentially vulnerable to rising geopolitical and climate-related supply risks, according to the British Retail Consortium.
Yen Under Pressure Amid Japanese Political Uncertainty
The USD/JPY rose 0.1% to 153.38, close to a recent low as Japan deals with political uncertainty following Sunday’s national election. This instability poses challenges for the Bank of Japan (BOJ) as it contemplates monetary policy at Thursday’s meeting, where it’s widely expected to keep rates unchanged. Japan’s Finance Minister, Katsunobu Kato, reiterated vigilance against excessive exchange rate moves, signaling potential intervention to stabilize the yen.
Chinese Yuan Weakens Ahead of PMI Release
USD/CNY climbed 0.2% to 7.1376, reaching its highest in over two months. Investors are looking forward to China’s PMI data on Thursday to gauge the impact of Beijing’s recent stimulus measures on economic recovery.
This week’s data deluge and global political events are set to keep traders on their toes as the U.S. dollar holds firm, with key economic signals to further inform the Fed’s rate decisions.
