Dollar advances after data as eyes turn to jobs report

THE dollar index rose on Friday (Oct 25), with the greenback set to lock in a fourth straight week of gains after data this week kept interest rate expectations for the US Federal Reserve in check while investors looked towards next week’s key payrolls report.

A run of positive economic data has quieted expectations about the size and speed of the Fed’s rate cuts, which has also lifted US Treasury yields.

The Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 0.5 per cent last month after an unrevised 0.3 per cent gain in August and above the 0.1 per cent rise estimated by economists polled by Reuters.

Investors are now focusing on the October government payrolls report this week, which is likely to be impacted by a strike at Boeing and two hurricanes that hit the US south-east.

“We had a massive recalibration in economic expectations for the US and that process seems to have largely run its course, the Fed’s policy trajectory looks much more reasonable and interest rate differentials between the US and other major economies are stabilising here,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“Clearly payrolls data is the key variable, and it is still an open question as to whether September’s number was an outsized move or an aberration, a statistical aberration and so, next week’s report will help to clarify that, but the reality is that we also are going to be taking it with a huge grain of salt.”

The dollar index, which measures the greenback against a basket of currencies, rose 0.18 per cent to 104.24, and was up 0.74 per cent on the week, with the euro down 0.22 per cent at US$1.0803.

In Europe, a survey on Friday of German business sentiment showed confidence improved more than expected this month, snapping four straight months of declines, offering hope for some respite towards the end of the year in the economy’s battle with industrial woes and soft global demand.

European Central Bank (ECB) president Christine Lagarde said the eurozone’s inflation is “well on track” to hit the European Central Bank’s 2 per cent target next year, reiterating the bank’s most recent guidance. French central bank chief Francois Villeroy de Galhau said the ECB will keep on cutting interest rates and its 3.25% deposit rate remains “quite far” away from a neutral setting.

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The dollar has also benefited from a rise in market expectations for a victory next month by Republican candidate and former US president Donald Trump, which would likely bring about inflationary policies such as tariffs.

Markets are pricing in a 95.6 per cent chance for a cut of 25 basis points at the Fed’s November meeting, with a 4.4 per cent chance of the US central bank holding rates steady, according to CME’s FedWatch Tool. The market was completely pricing in a cut of at least 25 bps a month ago, with a 57.4 per cent chance of a 50 bps cut. REUTERS