The U.S. dollar remained steady at its recent highs on Monday as investors processed China’s weekend stimulus announcements, which fell short of expectations. Meanwhile, the euro continued its decline ahead of the European Central Bank (ECB) meeting, falling by 0.1% to $1.09285. Investors are anticipating a 25 basis point interest rate cut at the ECB meeting on October 17, amid data pointing to a slowdown in eurozone activity.
A strategist at Lloyds Bank noted that the current monetary policy effects require time to manifest, making it difficult to argue for further waiting before new decisions are made. He added that current monetary policy may be too restrictive. For ECB President Christine Lagarde, the challenge will be how to communicate the upcoming shift in policy without unsettling the hawkish members of the bank who remain focused on past developments.
In terms of currency movements, market activity was limited as Japanese markets were closed for Sports Day, and U.S. bond markets were shut for Columbus Day. In this context, the pound held steady near a one-month low at $1.30595.
The U.S. dollar index remained near the 103 level, surpassing last week’s peak, which was the highest since mid-August. This rise is driven by traders scaling back expectations for further significant interest rate cuts by the Federal Reserve in its remaining meetings this year.
Last week saw limited moves in major markets. The yen and euro both fell by about 0.3%, while the pound dropped 0.4%, and the dollar index rose by 0.4%. U.S. data last week showed slightly higher-than-expected inflation, but an increase in jobless claims maintained expectations that the Fed will cut interest rates by 25 basis points in November and December.
Traders are now looking ahead to U.S. retail sales and jobless claims data on Thursday, in addition to the ECB’s policy review. A Fed governor, who supports a larger rate cut due to concerns over the slowing pace of inflation, is scheduled to speak later today.
In Asia, markets were focused on China’s fiscal stimulus announcement. The yuan fell by 0.3% against the dollar, while the Australian dollar, closely tied to China’s fortunes, dropped 0.3% to $0.67320.
China announced on Saturday that it would significantly increase government debt issuance to provide financial support to low-income households, boost the property market, and strengthen state banks’ capital in an effort to revive slowing economic growth. However, specific details on the scale of the stimulus were not provided.
Since September 24, the yuan has fallen by nearly 1% against the dollar in the local market, following the People’s Bank of China’s most aggressive stimulus measures since the pandemic. Meanwhile, the New Zealand dollar declined by 0.3% to $0.60895, after dropping 0.8% last week due to a half-point interest rate cut by the central bank, which hinted at further cuts to come.
In the digital currency market, Bitcoin rose by 1.8% to a ten-day high of $64,104, while Ether gained 3.1%, reaching a two-week high of $2,546.35.
