Oct 14 2024: The U.S. dollar remained close to recent highs on Monday as investors evaluated China’s underwhelming weekend stimulus announcements. Meanwhile, the euro continued to slide ahead of an important European Central Bank (ECB) meeting later this week.
The euro edged down by 0.1% to $1.092850, marking its 11th decline in 12 sessions. Investors are anticipating a 25-basis-point interest rate cut from the ECB during its October 17 meeting, amid signs of weakening economic activity in the eurozone.
Lloyds Bank strategist Sam Hill noted in a report, “Given the lagging effects of policy, it’s hard to justify a ‘wait and see’ approach. Clearly, policy is overly restrictive.” Hill also highlighted the challenge ECB President Christine Lagarde faces in communicating this shift without alarming more hawkish policymakers.
Currency movements were subdued as Japanese markets closed for Sports Day, and U.S. bond markets were inactive for Columbus Day. The British pound hovered near one-month lows at $1.30595.
The U.S. dollar index stayed above 103, approaching last week’s peak—its highest level since mid-August—supported by reduced market expectations of further substantial rate cuts by the Federal Reserve in its remaining policy meetings for the year.
In major currency markets last week, movements were minimal. The yen and euro both dropped by 0.3%, the British pound lost 0.4%, while the dollar index rose 0.4%. U.S. economic data showed slightly higher-than-expected consumer inflation, paired with increased weekly jobless claims. This sustained the expectation that the Fed would implement 25-basis-point rate cuts in November and December.
Traders are now focused on Thursday’s U.S. retail sales and jobless claims reports, as well as the ECB’s policy meeting. Fed Governor Christopher Waller, a proponent of a larger rate cut due to concerns about undershooting the Fed’s inflation target, is scheduled to speak later on Monday.
China’s Stimulus Disappoints
In Asia, market activity was dominated by Beijing’s fiscal stimulus briefing. China’s yuan fell 0.3% against the dollar, and the Australian dollar, which is closely tied to China’s economic fortunes, also declined 0.3% to $0.67320.
Over the weekend, China announced plans to “significantly increase” government debt issuance to provide subsidies to low-income households, support the property market, and bolster state banks’ capital as part of efforts to stimulate economic growth. However, the lack of specific details on the size of the stimulus left investors uncertain. Finance Minister Lan Foan promised more “counter-cyclical measures” this year but did not elaborate.
Christopher Wong, a currency strategist at OCBC in Singapore, commented, “More time may be needed to develop well-thought-out and targeted measures. But those measures need to come quickly, as markets are eagerly awaiting them. If expectations are too high and delivery falls short, it could lead to disappointment.”
Since September 24, when the People’s Bank of China initiated its most aggressive stimulus since the pandemic, the onshore yuan has fallen nearly 1% against the dollar.
Elsewhere, the New Zealand dollar was down 0.3% at $0.60895, following last week’s 0.8% drop after the central bank cut interest rates by 50 basis points and signaled potential further reductions.
In the cryptocurrency market, Bitcoin rose 1.8%, reaching a 10-day high of $64,104, while Ethereum climbed 3.1%, hitting a two-week high of $2,546.35.
