Dollar steady as investors eye release of US data backlog

The US dollar index rose slightly to 99.37.

SINGAPORE: The US dollar firmed slightly today as investors braced for the release of a slew of US economic data following the end of the government shutdown, hoping it would add clarity to the Federal Reserve’s rate outlook in December.

Market reaction to US President Donald Trump’s tariff U-turn on more than 200 food products was muted, with some analysts saying the move was not a surprise due to cost-of-living issues.

Elsewhere, sterling remained under pressure following a whirlwind Friday session as speculation swirled around the UK government’s highly anticipated Nov 26 budget.

The safe-haven Swiss franc hovered around a one-month high and last stood at 0.7941 per dollar, finding support from jitters over an ugly selloff in stock markets recently.

The focus this week will be on various US data releases for clues on the health of the world’s largest economy, with the closely watched September nonfarm payrolls report due on Thursday.

“We have had a data vacuum for over 40 days, so I think markets will be super interested in any new information about the US economy,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

“I think the risk is definitely skewed to a weaker payrolls print, and that would just reignite market expectations about a December FOMC rate cut and send the US dollar down,” Kong said.

Currency moves were subdued in early Asia trade today ahead of the releases, with the euro down 0.11% to US$1.1607 while the Australian dollar reversed some of its gains from last week and eased 0.15% to US$0.6527.

The New Zealand dollar similarly fell 0.12% to US$0.5673, while the US dollar index rose slightly to 99.37.

Despite signs of further weakness in the US economy from recent private-sector data, investors have trimmed expectations of a Fed cut next month, betting that gaps in economic data will delay or even derail further easing.

Markets are now pricing in just over a 40% chance of a 25-basis-point rate cut next month, down from over 60% earlier this month.

However, that has failed to substantially lift the dollar, which last week was caught up in a broad selloff alongside US stocks and bonds.

“We suspect that this US dollar weakness in November reflects speculative traders closing long US dollar positions ahead of heightened volatility as a higher-than-normal rate of US data emissions prevails over the next few weeks,” said Thierry Wizman, global FX and rates strategist at Macquarie Group, in a note.

Sterling drifts

The British pound traded 0.11% lower at US$1.3161 today, following sharp swings at the end of last week on news that finance minister Rachel Reeves has no plans to raise income tax rates in the upcoming budget.

That alarmed investors who had been anticipating a rise to help fill an expected fiscal shortfall, sparking a surge in government borrowing costs on Friday.

Reeves is expected to need to raise tens of billions of pounds to stay on track to meet her fiscal targets in the Nov 26 annual budget, and financial markets had seen a rise in income tax as the surest way to achieve this.

Against the pound, the euro held near its strongest level in about 2-1/2 years at 88.23 pence.

“It will definitely be more difficult to fill the big budget hole without raising the income tax rate,” said CBA’s Kong.

“Concerns remain that the UK government may not be able to consolidate the budget as much as previously expected, and that could again fuel concerns about the UK fiscal trajectory,” said Kong.

In other currencies, the yen languished near the ¥155 per dollar level and last stood at ¥154.60, leaving traders alert to the threat of intervention from Japanese authorities to stem the yen’s decline.

It hardly reacted to data today which showed Japan’s economy contracted an annualised 1.8% in the July-September quarter, the first fall in six quarters, due to a hit to exports from US tariffs.