The US dollar, after reaching a 10-month high, slightly pulled back on Friday. Nevertheless, it is poised for its most substantial quarterly increase in a year, marking a significant gain of 2.8% for the quarter. This growth comes after an impressive 11-week rally, the longest streak in nine years. The dollar index, tracking the US currency against several others, slipped by 0.4% to 105.70.
The dollar’s strength was initially bolstered by high US Treasury yields, which have now fallen from multi-year highs. Coupled with a substantial 27% increase in oil prices this quarter, this shift has contributed to the dollar’s positive performance against major currencies this year. City Index markets strategist Fiona Cincotta noted several factors at play, including the robust US economy, a strong job market, rising inflation, and surging oil prices.
Looking ahead, market observers are closely monitoring upcoming data releases, starting with crucial US personal consumption data scheduled for later in the day. However, concerns loom over a potential partial government shutdown that could disrupt the timely release of economic data. This lack of data may create uncertainty, affecting the Federal Reserve’s decision-making regarding potential rate increases.
Richmond Fed President Thomas Barkin, among other officials, expressed uncertainty about the necessity of future monetary policy changes in the coming months. Amid these developments, the yen is under pressure as it hovers near 150 per dollar, a level that many believe could trigger intervention from authorities. Currently, the yen is trading at 149.125 to the dollar.
In Japan, core inflation in the capital city slowed for the third consecutive month in September, primarily due to falling fuel costs. Despite the limited impact of currency intervention, some experts suggest that the Japanese government could demonstrate its commitment to addressing rising import prices resulting from a weaker yen.
On the European front, the euro experienced a boost, rising 0.4% to $1.0608 for the second consecutive day. This gain helped the euro move away from this week’s multi-month low of $1.0488. Meanwhile, the British pound also saw a 0.6% increase, reaching $1.2268. This uptick followed the release of data indicating that the UK economy, as of the end of June 2023, was 1.8% larger than in the last quarter of 2019, before the onset of the COVID-19 pandemic. This positive economic performance surpassed earlier estimates, providing support to the pound after it hit its lowest point since March 17 earlier in the week.
In summary, the US dollar’s strength, influenced by various economic factors, has impacted currency markets globally. As different regions grapple with their economic challenges, currency values continue to fluctuate, creating a dynamic environment for traders and investors.