Election, Economy, Escalation And Expectations Enhance Dollar's Appeal

(RTTNews) - Uncertainty surrounding the presidential election in the U.S., data underscoring the resilience of the U.S. economy, the escalation in geopolitical tensions in the Middle East as well as the sobering rate cut expectations boosted the U.S. dollar during the week ended October 25. The greenback gained against the euro, the British pound, the Australian dollar, the Japanese yen, the Canadian dollar, the Swedish Krona as well as the Swiss franc.

The six-currency Dollar Index rose for the fourth week in a row as world markets braced for the Presidential election scheduled for November 5 and the Fed's monetary policy decision on November 7.

The Dollar Index jumped 0.74 percent during the week spanning October 21 to 25, rising to 104.26 from 103.49 a week earlier. From the low of 103.42 recorded on Monday, the index jumped to a weekly high of 104.57 on Wednesday.

The S&P Global PMI readings from the U.S. released on Thursday showed both the manufacturing and services sector performing better than expected. Data from the U.S. Census Bureau showed sales of new single-family homes jumping 4.1 percent in contrast to a 2.3 percent fall in August.

The initial jobless claims data released by the U.S. department of labor on Thursday showed initial jobless claims for the week ended October 19 unexpectedly decreasing to 227 thousand from 242 thousand in the previous week. Markets had expected a level of 242 thousand. The decline in claims triggered fears of the Fed delaying rate cuts as concerns about the labor market diminished.

New orders for manufactured durable goods decreased 0.8 percent in September, following a revised 0.8 percent decline in August and far better than market expectations of a 1 percent decline. The University of Michigan's consumer sentiment reading was also revised upward to 70.5 in October from a preliminary of 68.9. With a third consecutive month of rises, the measure reached the highest level in six months.

The economic data helped sober Fed rate cut expectations that were reinforced with the release of the Fed's Beige book on Wednesday. The commentary on current economic conditions across the 12 Federal Reserve Districts had pointed to continued sluggishness in the U.S. economy. The report showed that economic activity was little changed in nearly all Districts since early September, though two Districts reported modest growth.

Expectation of a Trump Presidency boosted bond yields also. Yields on ten-year U.S. treasuries surged from 4.075 percent on October 18 to 4.232 percent on October 25, bolstering the greenback further.

The EUR/USD pair plunged 0.67 percent during the week ended October 25 amidst deepening rate cut expectations from the European Central Bank. The pair slipped to 1.0793 from 1.0866 in the week earlier amidst data that showed producer prices in Germany dropping 1.4 percent year-on-year in September versus a decrease of 0.8 percent in the previous two months. The weekly trading ranged between the high of 1.0872 recorded on Monday and the low of 1.0760 touched on Wednesday.

Bank of England Governor Andrew Bailey's acknowledgement that disinflation in the U.K. was happening faster than expected boosted rate cut expectations from the Bank of England causing the sterling to drop 0.68 percent against the greenback during the week ended October 25. The GBP/USD pair declined to 1.2959 on October 25, from 1.3048 a week earlier. The sterling's weekly trading range was between $1.3058 recorded on Monday and $1.2904 recorded on Wednesday.

Expectations that consumer price inflation in Australia would fall into the Reserve Bank of Australia's band of 2 to 3 percent in September contributed to the AUD's weakness. The AUD/USD pair tumbled 1.54 percent during the week spanning October 21 to 25. From the level of 0.6706 recorded on October 18, the pair dropped to 0.6603 in a week's time. The pair touched a high of 0.6723 on Monday and a low of 0.6599 on Friday.

Anxiety ahead of the general elections in Japan triggered a weakness in the Japanese yen. The greenback's strength amidst an improved outlook on the U.S. economy as well as expectations of sticky interest rates in the U.S. aided the Japanese yen's decline against the U.S. Dollar. The USD/ JPY pair rallied 1.86 percent during the week ended October 25 as it closed at 152.30 versus 149.52 a week earlier. The pair ranged between the low of 149.07 on Monday and the three-month high of 153.18 on Wednesday.

Currency market sentiment remains on edge ahead of elections in the U.S. as well as key economic data scheduled for release. Ahead of the release of U.S. GDP data on Wednesday and the jobs data on Friday, the Dollar Index has edged down to 104.21 from the level of 104.26 recorded at close on Friday.

Ahead of inflation data from the Euro Zone due on Thursday, which is expected to show an uptick, the EUR/USD pair has rallied to 1.0819. The GBP/USD pair has also increased to 1.2988 as market spotlight turns on the new U.K. government's budget and fears of additional govt borrowing.

The AUD/USD pair has edged up 0.07 percent to 0.6608 amidst anticipation ahead of the releases of the CPI update on Tuesday.

Despite political uncertainty limiting the headroom available to Bank of Japan to raise rates further, markets are keenly watching out for the Bank of Japan's interest rate decision due on Wednesday. The yen has retreated further against the greenback, lifting the USD/JPY pair to 152.68 versus 152.30 at close on Friday.