The U.S. dollar retreated slightly from its recent one-year highs at the start of a week with limited notable economic data but featuring remarks from several Federal Reserve officials.
The dollar index, which tracks the dollar’s performance against six other major currencies, rose by 1.6% in the previous week, marking its sixth weekly gain out of the last seven.
Dollar Continues Its Strength
The dollar has benefited from a bullish structural shift since Donald Trump’s election as U.S. president earlier this month. The macroeconomic narrative has provided little reason to doubt the dollar’s continued strength.
“Inflation data has been hotter than the Fed’s target would tolerate, and Chairman Jerome Powell added a layer of caution about future easing in a speech last week,” analysts at ING noted.
“With very little new information on the U.S. economy expected this week, the implied policy divergence between the Fed and most other G10 central banks could mean that any positioning-driven correction will be short-lived,” the analysts added.
At least seven Federal Reserve officials are scheduled to speak this week, starting later on Monday with Chicago Fed President Austan Goolsbee. Although Goolsbee is generally viewed as more dovish, most officials are expected to adopt a cautious tone regarding aggressive rate cuts.
Futures markets imply about a 60% chance of a quarter-point rate cut by the Fed in December and forecast 77 basis points of cuts by the end of 2025—down from over 100 basis points just a few weeks ago.
Euro Shows Bearish Signals
In Europe, EUR/USD rose 0.3% to 1.0568 ahead of speeches by several European Central Bank (ECB) officials, including President Christine Lagarde.
ECB speakers are likely to adopt a pessimistic tone, particularly after preliminary figures released last week revealed that the eurozone’s economy grew faster than expected in the third quarter.
However, quarterly growth of 0.4% underscored the eurozone’s fragile economic state, with Germany’s economy—the bloc’s largest—remaining particularly weak.
ECB policymakers will also need to consider the potential risk of tariffs impacting EU trade following Donald Trump’s election as U.S. president.
The week concludes with the release of the latest eurozone PMI activity data, which traders will analyze closely.
“PMIs have become an increasingly important release for the eurozone after the European Central Bank shifted focus from inflation to growth and began incorporating a broader range of soft activity data,” ING analysts added.
GBP/USD Rises Ahead of UK CPI Data
GBP/USD climbed to 1.2622 ahead of the release of UK CPI data for October, scheduled for Wednesday.
Economists estimate that the annual inflation rate rose to 2.2%, up from 1.7% in September. This would mark the first time the annual inflation rate dipped below the Bank of England’s 2% target in over three years.
Earlier this month, the Bank of England implemented its second 25-basis-point rate cut and indicated that further rate cuts would likely be gradual, taking into account the new UK government’s budget plans.
Ueda Hints at December Hike
USD/JPY edged up 0.2% to 154.64 after Bank of Japan Governor Kazuo Ueda reiterated that interest rates would continue to rise gradually. However, he did not provide clear guidance on whether a hike would occur by December.
The absence of explicit direction caused pullbacks in the yen, which had strengthened late last week after Japan’s Finance Minister Katsunobu Kato signaled the possibility of intervention if the yen depreciates excessively and rapidly.
USD/CNY Near Three-Month High
USD/CNY rose 0.2% to 7.2416, slightly below its three-month high, as sentiment toward China remained strained. This was driven by expectations of higher U.S. trade tariffs against the Asian nation under the new Trump administration.
