Dollar Eases as Month-End Flows Weigh; Eyes on Fed and BOJ

Dollar Weakens on Portfolio Rebalancing

The dollar edged down against a basket of currencies on Friday, pulled down by portfolio rebalancing. However, it was on track to end the week higher as fresh data reinforced the view that the U.S. economy remains strong.

Positive Economic Data Supports Dollar

U.S. consumer spending increased more than expected in September, signaling a strong fourth quarter. Additionally, monthly inflation was elevated, according to data released on Friday. These positive indicators contributed to the dollar’s overall strength.

Month-End Flows Impact Dollar

Analysts attributed some weakness in the dollar to portfolio rebalancing. Bipan Rai, North America head of FX strategy at CIBC Capital Markets, explained that month-end flows tend to affect the currency’s price action. However, he still expects the dollar to remain strong.

Fed and BOJ Meetings Awaited

Forex moves were muted as traders await the Federal Reserve and Bank of Japan policy meetings next week. Additional positioning is expected to occur once these key risk events have concluded.

Fed Likely to Remain on Pause

Cooling inflation is predicted to keep the Federal Reserve on pause in the coming months. Traders speculate that despite strong consumer spending, there is still a chance of a rate hike later this year due to persistent underlying price pressures.

ECB Leaves Interest Rates Unchanged

The European Central Bank (ECB) left interest rates unchanged as expected, ending a streak of 10 consecutive rate hikes. The euro responded by increasing in value.

Euro Zone Business Activity Declines

Data earlier this week revealed that euro zone business activity took a surprise turn for the worse. This negative development impacted the overall risk sentiment in the market.

Australian Dollar Shows Improvement

Overall risk sentiment improved slightly, with the Australian dollar climbing in value. The Australian dollar is often used as a proxy for risk appetite in the market.

Yen Retreats from Key Level

The yen pulled back from the 150 per dollar level, which some saw as a potential trigger for intervention by Japanese authorities. Finance Minister Shunichi Suzuki stated that Japan will continue to respond to the currency market with a strong sense of urgency.

BOJ May Adjust Bond-Yield Control

Speculation is mounting that the Bank of Japan (BOJ) could change its policy on bond-yield control. There have been discussions about increasing the existing limit on yields set just three months ago.

Bitcoin Slips Amidst Speculation

In cryptocurrency markets, bitcoin slipped in value. The world’s largest cryptocurrency has recently advanced sharply, fueled by speculation surrounding the imminent launch of an exchange-traded bitcoin fund.