FX.co ★ Dollar Index Edges Up As Markets Eye Vote And Fed

During the week ending November 1, currency market dynamics were significantly influenced by uncertainties surrounding the U.S. Presidential election and the Federal Reserve's anticipated interest rate decision. The U.S. Dollar strengthened against several major currencies, including the British Pound, Australian Dollar, Japanese Yen, Canadian Dollar, Swedish Krona, and Swiss Franc, but weakened against the Euro in the week from October 28 to November 1.

The Dollar Index, which gauges the U.S. Dollar's performance against a basket of currencies comprising the Euro, British Pound, Japanese Yen, Canadian Dollar, Swedish Krona, and Swiss Franc, closed at 104.28 on November 1, slightly up from 104.26 the previous week. The index experienced a wide trading range, hitting a high of 104.64 on Tuesday and a low of 103.68 on Friday, as mixed economic data emerged throughout the week.

On Tuesday, reports indicated a decrease in job openings to 7.44 million in September, down from a revised 7.86 million in August, underperforming market forecasts of 7.99 million.

The U.S. Bureau of Economic Analysis released its advance estimate on Wednesday, revealing the American economy grew at an annualized rate of 2.8 percent in the third quarter of 2024. This figure fell short of the 3 percent expansion noted in the second quarter, and below the anticipated 3 percent growth for the recent quarter.

Inflation readings based on the Personal Consumption Expenditures (PCE) index, disclosed on Thursday, aligned with market forecasts. While the month-on-month core component met expectations, the year-on-year core component did not decline as predicted by the market.

The U.S. Bureau of Labor Statistics reported a slowing in non-farm payroll additions to 12,000 in October, a drop from the 223,000 added the previous month. The market had anticipated 113,000 new jobs, considering the impact of hurricanes and the Boeing strike. However, the unemployment rate remained steady at 4.1 percent, as expected.

On Friday, the ISM Manufacturing PMI unexpectedly decreased to 46.5, contrary to market predictions of an increase to 47.6 from 47.2 the prior month.

Despite these mixed economic indicators, the market continued to anticipate a 25 basis point rate cut in the Federal Reserve's review on November 7. Amidst the electoral atmosphere, the yields on ten-year U.S. treasuries fluctuated between 4.388 percent and 4.198 percent throughout the week.

A significant rise in Euro Area inflation gave a boost to the euro, causing the U.S. Dollar to slip 0.38 percent against it over the week ending November 1. The EUR/USD pair advanced from 1.0793 on October 25 to 1.0834 by November 1, with the weekly trading range spanning a low of 1.0768 on Tuesday and a high of 1.0905 on Friday.

Thursday's data reveal that the annual inflation in the Euro Area rose to 2 percent in October from 1.7 percent in September, the lowest since April 2021. Market expectations had set the increase at 1.9 percent, prompting a cautious approach from the European Central Bank in regards to interest rates. Concurrent strong rate cut expectations from the Bank of England, amid a larger-than-expected drop in inflation, saw the sterling decrease by 0.25 percent against the dollar for the week ending November 1. The GBP/USD pair fell to 1.2926 on November 1 from 1.2959 the prior week, with a trading range peaking at $1.3043 on Wednesday and dipping to $1.2841 on Thursday. The Bank of England is expected to announce a 25-basis-point rate cut on Thursday.

Australia observed a greater decline in consumer price inflation than anticipated, which contributed to the Australian Dollar's decrease against the dollar for the week ending November 1. The Australian Bureau of Statistics reported a 2.1 percent year-on-year rise in the Consumer Price Index for September 2024, short of market expectations of 2.4 percent and August's 2.7 percent level. Nonetheless, the Reserve Bank of Australia is not expected to lower rates in its review on Tuesday.

During the week from October 28 to November 1, the AUD/USD pair fell 0.67 percent. It moved from 0.6603 on October 25 to 0.6559 within the week, reaching a high of 0.6624 on Monday and a low of 0.6534 on Wednesday.

The USD/JPY pair increased by 0.45 percent over the week ending November 1, closing at 152.98 compared to 152.30 a week earlier. The pair's trading range saw a high of 153.87 on Monday and a low of 151.77 on Friday. The yen faced pressure following elections in Japan that led to political instability, with Prime Minister Shigeru Ishiba's coalition losing its parliamentary majority, although a firm stance from the Bank of Japan limited losses.As the fiercely contested U.S. presidential election looms, along with the possibility of a Federal Reserve rate cut, these factors continue to exert significant influence over the currency markets. Recently, the Dollar Index fell to 103.66, down from Friday's closing figure of 104.28.

In light of the Dollar's weakening, the EUR/USD pair has climbed to 1.0905, while the GBP/USD pair has risen to 1.2965. Anticipating the Reserve Bank of Australia's impending interest rate decision scheduled for Tuesday, the AUD/USD pair has increased by approximately half a percent to 0.6602. Meanwhile, in advance of the Bank of Japan's meeting minutes set to be released on Tuesday, the USD/JPY pair has declined to 151.78.

As the election date draws nearer, the currency market's attention is expected to shift towards potential post-election volatility, alongside forthcoming decisions and guidance from the Federal Reserve.