Dollar pauses for breath after US data, eyes on French and British economies

THE dollar paused near a two-month high against a basket of peers on Friday (Oct 11), as traders digested the latest inflation and jobs data, while a rise in British economic growth could not lift the pound from one-month lows.

Moves were fairly muted across major currencies. The euro was down 0.06 per cent at US$1.10931, the pound flat at US$1.3058, while the dollar was up 0.3 per cent on the Japanese yen at 149.02.

That left the dollar index at 102.95, up a touch but taking a breather after its recent steady climb that took it above 103 on Thursday, its highest since mid-August on the back of traders reducing bets on further jumbo rate cuts by the Federal Reserve at its remaining meetings this year.

Those expectations, now for a 25-basis-point rate cut in November and December, were not disrupted by Thursday’s data.

US core consumer inflation came in at 0.3 per cent in September, slightly hotter than expected, which pointed to stalling progress in the Federal Reserve’s fight against inflation, though this was tempered by high weekly jobless claims figures.

“The data yesterday from the US has taken some of the upward momentum out of the dollar,” Lee Hardman, senior currency analysts at MUFG, said “though in terms of the impact on Fed policy making, we think it’s pretty limited. There’s a lot of noise in there.”

The weekly jobless claims data was skewed by Hurricane Helene. Next week’s data will be impacted by Hurricane Milton.

There was plenty for markets to digest elsewhere.

Britain’s economy grew in August after two consecutive months of stagnation, providing some relief to finance minister Rachel Reeves ahead of the new Labour government’s first budget later this month.

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However the pound was broadly steady on the dollar and little changed on the euro at 83.69 pence to the common currency.

More important for the pound is inflation and labour market data next week.

Traders are also watching French politics, after the government on Thursday delivered its 2025 budget with plans for US$65.5 billion worth of spending cuts and tax hikes on the wealthy and big companies to tackle a soaring fiscal deficit.

The budget is unlikely to pass until December, as French Prime Minister Michel Barnier and his allies in President Emmanuel Macron’s camp lack a majority by a sizeable margin and will have little choice but to accept numerous concessions.

As a result, the immediate risk to the euro from French politics, Hardman said, is that ratings agency Fitch is scheduled to update its view on France’s debt late on Friday, which could trigger a short term reaction.

“But I don’t think it would have a sustained negative impact. For that to happen, French bonds would have to suffer a heavier sell-off and trigger a sustained lack of confidence,” he added.

Markets are also awaiting a news conference from China’s finance ministry on fiscal policy on Saturday. Waxing and waning in stimulus expectations have buffeted China-exposed antipodean currencies this week.

The Australian dollar was last down 0.1 per cent on the day at US$0.6734, and set for a weekly fall of 0.9 per cent.

The New Zealand dollar was at US$0.6092, set for a weekly fall of more than 1 per cent, also due to the central bank on Wednesday slashing rates by a half point and hinting at further cuts to come.

In emerging markets, one other focus was India where the rupee weakened past 84 against the dollar for the first time, leading, traders thought, to the Indian central bank selling dollars to prop it up. REUTERS