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Dollar steadies ahead of key economic data deluge

Investing.com – The U.S. dollar steadied at elevated levels Tuesday before the release of a string of key economic readings this week, while Japanese yen remained near a three-month low on political uncertainty.

At 05:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded slightly lower at 104.122, but was poised for a 3.6% gain for the month, its best performance in over 2 years.

Data deluge looms

The dollar has been boosted of late by a series of economic data releases pointing to the underlying strength of the U.S. economy, resulting in investors pencilling in a slower pace of interest rates from the Federal Reserve than had previously been seen likely.

However, traders appear hesitant to take on new positions at the moment with the week littered with important data releases.

September’s JOLTS job openings data is due later in the session and Wednesday sees US gross domestic product data. But most eyes will be on September’s U.S. core personal consumption expenditures price index – the Fed’s preferred measure of inflation – on Thursday, followed by the monthly jobs report on Friday.

Another factor boosting the dollar has been the increasing confidence that Republican candidate Donald Trump will win next week’s U.S. presidential election.

Trump’s policies on tariffs, tax and immigration are seen as inflationary, thus positive for the dollar.

German consumer sentiment improves

In Europe, EUR/USD edged 0.1% higher to 1.0817, helped by the German GfK consumer sentiment index increasing more than expected, rising to -18.3 points from a slightly revised -21.0 the prior month.

However, the German economy remains in the mire, with the German Chamber of Commerce and Industry stating Tuesday that the largest economy in the eurozone will contract by 0.2% this year, cutting its previous forecast for a stagnation published in May.

DIHK also expects zero growth in 2025, which would be the third year in a row without real growth in GDP.

The ECB has cut rates three times this year, each time by 25 basis points, and expectations are growing that the central bank will consider a larger reduction at its next meeting.

GBP/USD traded 0.1% higher to 1.2982, with sterling holding steady ahead of Wednesday’s Budget, the first for the new Labour Government.

UK annual shop price deflation dropped to 0.8% in the 12 months to October, according to the British Retail Consortium, its weakest since August 2021 and a bigger fall than September’s 0.6% decline.

“Households will welcome the continued easing of price inflation,” BRC chief executive Helen Dickinson said. “But this downward trajectory is vulnerable to ongoing geopolitical tensions, the impact of climate change on food supplies, and costs from planned and trailed government regulation.”

Japanese political uncertainty

USD/JPY rose 0.1% to 153.38, just below Monday’s low, the yen’s weakest level since July, following Japan’s national election on Sunday.

The results of the election heralded increased political uncertainty in the country, which could present difficulties for the BOJ in raising interest rates further. The central bank is widely expected to keep rates unchanged on Thursday.

Japan’s Finance Minister Katsunobu Kato reiterated on Tuesday that the authorities would be vigilant to foreign exchange moves, including those driven by speculators.

USD/CNY rose 0.2% to 7.1376, to an over two-month high, ahead of the release of the Chinese purchasing managers index data on Thursday. 

The reading is expected to reflect some effects of the swathe of stimulus measures announced by Beijing over the past month.

 

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