Sep 30 2024: The U.S. dollar steadied on Monday as traders awaited a speech by Federal Reserve Chair Jerome Powell, set to deliver insights ahead of Friday’s crucial employment report.
As of 04:25 ET (08:25 GMT), the Dollar Index, which measures the greenback against six major currencies, traded marginally lower at 100.035. This follows a period of decline, with last week marking the fourth consecutive weekly drop and the ninth in the past ten weeks.
Dollar Focused on Payroll Data
The U.S. dollar weakened last week after the Federal Reserve’s preferred inflation gauge showed a continued decline in price pressures, shortly after the Fed began its rate-cutting cycle. Powell is scheduled to address the National Association for Business Economics in Nashville, Tennessee, where he is expected to elaborate on the recent half-point rate cut.
A survey of professional forecasters, released by the association on Sunday, indicated that a “monetary policy mistake” is the greatest downside risk to the U.S. economy over the next 12 months.
Looking ahead, Friday’s nonfarm payrolls report will be critical in guiding the Fed’s future decisions on interest rate cuts. Economists predict the U.S. economy will have added 144,000 jobs in October.
“The Federal Reserve’s increased focus on employment heightens market sensitivity to the upcoming payroll data,” analysts at ING noted. “If unemployment ticks higher, expect a weaker dollar as markets maintain expectations for a half-point rate cut by either November or December.”
Euro Awaits Inflation Data
The euro edged up 0.1% to 1.1172 against the dollar, remaining stable ahead of Tuesday’s release of flash inflation data for September. This report will be closely watched by European Central Bank (ECB) officials, who are considering another rate cut in October.
Ahead of the broader eurozone release, Germany’s inflation figures are due, following last week’s reports of lower-than-expected inflation in France and Spain. These figures have heightened expectations for an October ECB rate cut.
“If eurozone inflation comes in weaker than expected and U.S. payrolls data suggests a Fed rate cut, the euro could underperform in a soft dollar environment,” said ING analysts. They added that while EUR/USD may briefly rise to 1.1200, a significant break higher is unlikely without a strong eurozone inflation surprise.
British Pound and Japanese Yen
The British pound traded 0.2% higher at 1.3399, close to last week’s high of 1.3430, which marked the highest level since February 2022. Earlier on Monday, data showed that the U.K. economy grew more slowly than initially estimated in the second quarter, with gross domestic product (GDP) rising by 0.5%, slightly below the 0.6% forecast.
In Japan, the yen weakened slightly as USD/JPY rose 0.2% to 142.44. This came after the yen had gained last week following the election of Shigeru Ishiba as the ruling party leader. Ishiba, a critic of aggressive monetary easing, signaled continued accommodative policy, leading the yen to give back some of its gains.
Additionally, Japan’s industrial production fell by 3.3% in August, and housing starts dropped 5.1% year-on-year.
Chinese Yuan Stabilizes
USD/CNY edged higher to 7.0120, with the yuan stabilizing after last week’s rally, which was driven by Beijing’s stimulus measures. The yuan broke below the key 7-per-dollar mark on Friday, as China’s currency gained strength following the stimulus efforts.
