- The greenback had another strong week as economic data showed a resilient economy.
- Data revealed stronger-than-expected US business activity.
- The yen fell on Monday after Japan’s election.
Currency futures extended declines as the dollar ended another week with gains due to upbeat data and increased bets for a Trump win. At the same time, downbeat economic data from countries like Japan and Canada weakened their currencies.
The greenback had another strong week as economic data showed a resilient economy. Last week, data revealed stronger-than-expected business activity in the manufacturing and services sectors in October. The S&P Global composite PMI rose from 54.0 in September to 54.3. The strong demand has solidified bets for a smaller rate cut in November. By Friday, markets were pricing a 95.6% chance of a Fed rate cut in November.
Moreover, Atlanta Fed estimates showed that the economy might expand by 3.4% in Q3 after a 3.0% increase in Q2. Another report on Thursday showed that unemployment claims dropped more than expected, indicating tight labor market conditions.
Meanwhile, on Friday, the University of Michigan reported that consumer sentiment rose to 70.5, above estimates of 69.0. The US economy has remained robust at a time when most other economies are deteriorating. Consequently, the dollar has risen against most of its peers.
Business activity data from the Eurozone and the UK showed weaker-than-expected demand that might push their central banks to lower borrowing costs. Meanwhile, retail sales in Canada came in below estimates, indicating weak consumer spending.
This week, market participants will focus on key US reports, like GDP and monthly employment. At the same time, all eyes will be on the US presidential election. According to economists’ estimates, the US economy might expand by 3.0% after a similar expansion in the previous quarter. Meanwhile, forecasts show that the US economy might add 111,000 jobs in October, a significant drop from the previous month’s blockbuster reading. Meanwhile, the unemployment rate might hold steady at 4.1%.
Traders have been betting on the outcome of the US presidential election. A higher chance of a Trump win has supported the dollar as his policy changes might drive inflation higher, boosting interest rates.
Yen (Source: Bloomberg)
Elsewhere, the yen fell on Monday after Japan’s election. The ruling party lost its majority seats status, complicating the outlook for fiscal and monetary policies. As a result, markets expect the Bank of Japan to assume a cautious stance during the policy meeting on Thursday.
