The dollar's upward trend paused on Thursday, while the euro gained strength despite disappointing economic data from Europe.
Dollar bounce pauses after data
Analysts at Brown Brothers Harriman observed that the dollar entered a "technical correction" after a week of consistent gains leading up to Thursday. However, they expect the dollar's strong performance to continue. "The weaker growth outlook globally emphasizes the ongoing disparities that favor the greenback," they noted.
In Thursday afternoon trading, the euro rose to $1.0799, up from $1.0774 the previous day, despite ongoing weak PMI data from the eurozone. The latest flash composite purchasing managers' index from Hamburg Commercial Bank slightly increased to 49.7 in October, from 49.6 in September, still indicating a contraction in the region's private sector.
Joshua Mahony from Scope Markets commented on early declines in French PMI surveys, suggesting the possibility of a 50-basis point cut by the ECB, as both services and manufacturing fell deeper into contraction. In contrast, the German economy saw some positive developments, with improved metrics lifting the composite reading to a two-month high of 48.4. However, with the eurozone composite remaining in contraction, the ECB needs to act decisively to boost sentiment amidst low inflation levels.
Euro shakes off
Against the euro, the pound slipped to €1.2018 from €1.2023 on Wednesday but gained against the dollar, rising to $1.2978 from $1.2955. A preliminary reading indicated that UK private sector growth slowed to a near one-year low in October due to "heightened economic uncertainty." The flash UK composite PMI fell to 51.7 in October from 52.6 in September, remaining above the 50-point mark that separates growth from decline, yet reaching an 11-month low.
S&P Global noted signs of pre-budget uncertainty, as the Labour government's first budget is set to be announced next Wednesday. Analyst Kit Juckes from Societe Generale remarked that while the Chancellor has warned of "tough decisions" regarding public finances, there’s a chance of unexpected spending measures that could be GBP-friendly. He also suggested that GBP/USD may be more vulnerable to a potential second Trump presidency than EUR/USD.
Chancellor Rachel Reeves promised her first budget will serve as an economic "reset" for the UK, stating that her statement on October 30 will focus on investing in "foundations of future growth." Speaking before international finance ministers in Washington, she emphasized the importance of economic stability for Britain's role as a credible international partner.
Against the yen, the dollar fell to ¥152.11 from ¥153.00 on Wednesday, having previously surged as high as ¥153.18 this week. Analysts at Lloyds Bank noted that while the dollar has strengthened against the yen, the fundamental case for a strong yen remains strong due to its undervaluation and shifting rate differentials as the Bank of Japan tightens policy.
Against the Canadian dollar, the dollar declined to CAD1.3823 from CAD1.3844 the previous day, following a high of CAD1.3862 on Wednesday after the Bank of Canada announced a significant rate cut. The Bank stated that inflation pressures have become less widespread, prompting a reduction in the overnight rate to 3.75% from 4.25%.
The dollar also weakened against the Australian dollar, falling to AUD1.5031 from AUD1.5066, and against the Swiss franc, where it traded at CHF0.8661, down from CHF0.8673.
