Dollar rally pauses, but uptrend intact
REUTERS, New York
The US dollar fell on Friday, taking a breather after five straight days of gains, as risk appetite increased following yet another round of stimulus measures from China that bolstered global equities led by Chinese stocks.
Investors cheered the Chinese government’s launch of two funding schemes to help boost its stock market. Chinese equities rallied as a result, lifting other stock markets as well, including the S&P 500 and the Nasdaq.
That elevated the Chinese yuan as well and boosted commodity currencies such as the Australian and Canadian dollars at the expense of the safe-haven greenback.
The dollar index, measuring the US unit’s value against six major currencies, however, was on track for its third weekly gain, currently up 0.6 percent this week. It has risen about 2.7 percent so far this month, its largest monthly gain since February 2023.
The index was last down 0.3 percent at 103.49 , its largest daily fall since late September.
“Today’s pullback in the dollar was more China-driven. Last night, China launched measures to support the stock market,” said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto.
“That boosted Chinese stocks and risk sentiment more broadly and put pressure on dollar/yuan, which in turn helped lift euro/dollar. That started the dollar pullback.”
Friday’s price action for the US dollar, however, was likely temporary, Bregar said.
The biggest support for the dollar over the last few weeks has been a shift in Federal Reserve policy expectations to a more moderate easing phase, after a slew of generally solid US economic data. The Fed slashed benchmark rates by a supersized 50 basis points (bps) in September, prompting the rate futures market at that time to price in another jumbo move this year.
“Speculation that the Fed could follow September’s 50 bps rate cut with another similarly sized move has been blown away by a round of data pointing to a resilient US economy,” wrote Jane Foley, head of FX strategy, at Rabobank in London.
“Instead, talk has emerged that the FOMC might be minded to cut rates only once more before the end of the year.”
US rate futures have priced in a 95 percent chance that the Fed will cut rates by 25 bps next month, and a 5 percent probability that it will pause, or keep the fed funds rate at the 4.75 percent-5 percent target range, according to LSEG estimates. They had previously seen a further 50-bps cut likely at one of these meetings.
The futures market also expect about 45 bps cut for 2024, and an additional 104 bps reductions next year.
In afternoon trading, the dollar slid 0.5 percent against the yen to 149.51. It has advanced about 0.8 percent on the week, however, versus the Japanese currency having broken above the 150 level on Thursday for the first time since early August. The US currency also climbed 4.6 percent in October, its best monthly showing since February last year.
Adding to the dollar’s overall shine was the rising prospect of former President Trump winning the November election, since his proposed tariff and tax policies are seen as likely to keep US interest rates high.
The dollar fell further versus the Japanese currency after data showed US housing starts dropped 0.5 percent to a 1.354 million pace in September, after rising by a hefty 7.8 percent to 1.361 million in August.