US Dollar firms as traders await return of data

NEW YORK/LONDON: The US Dollar (USD) edged higher against the euro and the yen on Monday as traders exercised caution ahead of what could be a busy week with the long-awaited return of U.S. economic data.

Market reaction to U.S. President Donald Trump’s tariff U-turn on more than 200 food products was muted, with some analysts saying the move was not a surprise due to the cost-of-living issues caused by the levies.

A flood of data that was delayed during the federal government shutdown is pending release starting this week, and is expected to provide clues on the health of the world’s largest economy, with the closely watched September nonfarm payrolls report due on Thursday.

“They are just waiting for the next shoe to drop,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “The overriding thing is the dollar and U.S. interest rates. People are looking at the September jobs data later this week. Generally, consolidating.”

Despite signs of further weakness in the U.S. economy from recent private-sector data, investors have trimmed expectations of a Fed cut next month, betting that gaps in economic data will delay or even derail further easing.

Markets are now pricing in a 42 per cent chance of a 25-basis-point rate cut in December, down from more than 60 per cent earlier this month.

Goldman Sachs currency analysts cautioned in their week-ahead note that while this week at least offers some data, it is not going to be the most helpful. That’s because it will take time for data to be relevant again, they said, and the upcoming payrolls data is unlikely to settle debates about the outlook.

In the medium term however, they think the incoming data will “show enough downside risks to the labor market to settle the swirling debate within the FOMC (the Fed’s rate-setting committee)” – something that will be negative for the dollar.

“We have to wait until we get some more concrete news out of the U.S. economy, primarily on the employment front,” said Joseph Trevisani, senior analyst, FX Street. “If we don’t get an improvement in the employment figures, especially in the ones the market always looks to, then I think the speculation will start up again on the Fed continuing to lower rates.”

For now the market remains range-bound. The euro was down 0.32 per cent on the dollar at $1.1582, while the yen fell 0.47 per cent to 155.255 to the U.S. currency.

YEN WATCH

The yen hardly reacted to data on Monday that showed Japan’s economy shrank an annualized 1.8 per cent in the three months through September, as a drop in exports in the face of U.S. tariffs resulted in the first contraction in six quarters.

The Japanese currency does, however, remain near a nine-month low against the dollar, leaving traders alert to the threat of intervention from Japanese authorities to stem the yen’s decline.

Japan last intervened in the currency market in July 2024 when the yen fell to a 38-year low of around 161.96 to the dollar, as currency weakness stoked sharp food and fuel price inflation.

Sterling slipped 0.1 per cent on the dollar to $1.3161. British assets saw a whirlwind Friday session as speculation swirled around the government’s highly anticipated November 26 budget.

This speculation is likely to continue, though the pound will also be influenced by British economic data this week, most notably monthly inflation data.

A cooler-than-expected inflation print for September sparked a shift in pricing for the Bank of England, and sent the pound lower, when it was released last month.

The safe-haven Swiss franc pulled back from a one-month high and last stood at 0.7957 per dollar, having found support last week from jitters over an ugly selloff in global stock markets.