On Monday, the U.S. dollar reached a 10-week high during light trading, continuing its bullish trend fueled by data suggesting a modestly slowing economy that aligns with expectations for moderate interest rate cuts by the Federal Reserve. Trading volume was thin, with several markets, including Japan and Canada, closed, and the U.S. bond market shut for Indigenous Peoples’ Day.
The dollar strengthened against the Chinese yuan after disappointing stimulus announcements from China over the weekend. The dollar index, which measures the greenback against six major currencies, climbed to 103.36, its highest level since August 8, and was last up 0.2% at 103.23. Meanwhile, the euro fell to a 10-week low below $1.09, currently down 0.3% at $1.0902.
The European Central Bank is anticipated to lower rates this week, but market focus remains on the Fed. The U.S. rate futures market indicates an 87% chance of a 25 basis point cut at the November meeting, with a 13% chance of a pause at the current target range of 4.75% to 5%, according to LSEG estimates. The Fed had previously cut rates by 50 basis points at its last policy meeting about a month ago.
For the remainder of the year, the futures market predicts around 45 basis points in cuts and another 98.5 basis points in reductions for 2025—significantly down from the nearly 200 basis points expected before the September Fed meeting and the robust U.S. nonfarm payrolls report, which adjusted easing expectations to a shallower cycle.
While the dollar has benefited from these adjusted expectations, analysts suggest that this trend may be nearing its end. “I suspect the rate adjustment is almost over, and we’re heading back on a downtrend. However, there may still be one more push,” noted Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. He anticipates potential stop triggers at $1.09 for the euro or $1.30 for the pound, with upcoming U.S. jobs data likely to show a weak figure around 120,000.
Minneapolis Fed President Neel Kashkari echoed market sentiments on the Fed’s easing policy during a speech at a Central Bank of the Argentine Republic conference, indicating that further modest reductions in policy rates may be appropriate to meet the Fed’s dual mandate of maintaining low unemployment and inflation.
In the eurozone, the euro has fallen for 11 of the last 12 sessions as investors increasingly price in a 25 basis point interest rate cut from the ECB at its upcoming meeting, amid signs of declining economic activity. Current indicators show ongoing weakness in the German economy, according to the economy ministry’s monthly report.
Adding to the eurozone’s challenges, Fitch revised France’s outlook from “stable” to “negative” due to rising fiscal policy and political risks. The pound dipped 0.1% against the dollar to $1.3054.
Against the yen, the dollar rose to its highest level since early August, reaching 149.96 yen in thin trading conditions, last seen up 0.5% at 149.89 yen. The market is now looking ahead to U.S. retail sales and jobless claims data, along with the ECB’s policy review, all scheduled for Thursday.
In Asia, trading was influenced by China’s fiscal stimulus briefing. The offshore yuan fell 0.3% against the dollar, trading at 7.0906. Finance Minister Lan Fo’an announced there would be more “counter-cyclical measures” this year but did not provide specific figures. “China’s weekend stimulus announcement fell short of expectations, as policymakers committed to supporting growth but didn’t deliver the concrete numbers the market hoped for,” said Karl Schamotta, chief market strategist at Corpay in Toronto. The onshore yuan has declined nearly 1% against the dollar since September 24, when the People’s Bank of China initiated its most aggressive stimulus measures since the pandemic.
In digital currencies, Bitcoin rose to a two-week high, up 4.6% at $65,881, while Ether surged 7% to $2,629, also reaching a two-week peak earlier in the session.