The U.S. Dollar Gains Strength Ahead of Powell’s Speech
The U.S. Dollar Gains Momentum
The U.S. dollar is on the rise in early European trade, anticipating a crucial speech from Fed Chair Jerome Powell later in the session. The dollar index, which measures the greenback against a basket of other currencies, has climbed 0.2% to 105.587, bouncing back from a near two-month low of 104.84 earlier this week.
Market Reaction to Federal Reserve Signals
Last week, the dollar index experienced its most substantial weekly decline since mid-July, following dovish signals from the Federal Reserve regarding the likelihood of further interest rate hikes this year. This decline was exacerbated by weak monthly data.
Traders Await Powell’s Speech
Traders are now looking forward to Powell’s speech for guidance on the central bank’s future policy direction. Analysts at ING believe that the Fed will want to underscore the risk of further rate hikes, following the reversal of financial conditions that prompted remarks such as the ‘term premium is doing the tightening’.
Euro’s Struggle Continues
The euro slipped 0.2% to 1.0677 ahead of the release of eurozone retail sales data for September, expected to show a 3.1% annual drop. German industrial production data further illustrated the darkening growth outlook in the eurozone. The International Monetary Fund recommended that the ECB should maintain its key deposit rate close to its record high 4% level through all of next year to curb price pressures.
Sterling Weighed Down
Sterling dropped 0.2% to 1.2275, further retreating from the seven-week high of 1.2428 seen earlier in the week. Comments from Bank of England Chief Economist Andy Haldane, stating that expectations for rate cuts from next summer looked reasonable, have weighed on the pound.
Aussie Dollar Rebounds
The Aussie dollar made a slight comeback, rising 0.1% to 0.6443 after experiencing its largest daily decline in about a month. The yen remained well above the key 150 level as traders awaited potential intervention by the Japanese government to boost the currency. Traders also awaited the release of the latest data for the Chinese yuan, due on Thursday.
