- China announced two funding programs to boost its equity market.
- UK retail sales came in higher than expected, showing robust consumer spending.
- The Canadian dollar remained weak on Friday as traders priced a massive BoC rate cut.
Currency futures rose on Friday as the dollar eased due to increased risk appetite. Risk sentiment improved after China announced stimulus measures to support the country’s stock market and risk-sensitive currencies like the Australian dollar firmed. However, the trend shifted on Monday as the dollar recovered on bets of a Trump win.
On Friday, China announced two funding programs to boost its equity market that improved risk appetite. Usually, when the economic outlook is dire, investors rush to the dollar’s safety. However, when the outlook improves, they prefer riskier currencies. China’s top officials have announced a series of efforts to support the fragile economy, especially in sectors like housing. China plays a significant role in the global economy’s health as it is a major consumer of most commodities. Therefore, efforts to boost its recovery improve risk sentiment.
Meanwhile, other factors like economic data impacted currencies like the pound. Notably, retail sales in the UK came in higher than expected, showing robust consumer spending. As a result, it eased bets for a November BoE rate cut.
Meanwhile, the euro recovered on Friday after reaching new lows due to increased ECB rate cut expectations. On Thursday, the European Central Bank lowered borrowing costs by 25-bps and gave little guidance on the future. However, markets moved to price another cut in December, weighing on the euro. Nevertheless, the outlook will keep shifting with incoming data.
Elsewhere, the Canadian dollar remained weak on Friday as traders priced a massive BoC rate cut in October. Data last week revealed that inflation dropped more than expected in September. As a result, market participants increased bets for a 50-bps rate cut this week to 90%.
Dollar index (Source: Bloomberg News)
The trend shifted slightly on Monday as markets focused on the upcoming US presidential election. The race between Kamala and Trump has been tight. However, as the election draws near, bets for a Trump win increase, boosting the greenback.
Investors believe a Trump presidency would increase tariffs and lead to other policy changes that would drive inflation. A spike in price pressure would undo some of the work the Fed has been doing and could put a pause on rate cuts. Consequently, the Trump trade boosted the dollar most of last week.
