The U.S. dollar rose on Wednesday amidst global market uncertainty, with the Dollar Index, which measures the performance of the U.S. currency against a basket of six major currencies, increasing by 0.1% to reach 100.969. This followed a sharp rise of 0.5% in the previous session, marking its highest gain since September 25.
The dollar received an additional boost on Tuesday after U.S. labor market data came in stronger than expected, fueling optimism about the U.S. economic outlook, especially with the monthly jobs report set to be released on Friday.
Experts noted that the strong labor market data raises the likelihood of the Federal Reserve increasing interest rates, despite some slowdown seen in the ISM manufacturing index. The Federal Reserve remains heavily focused on monitoring labor market developments, as the unexpected rebound in August job openings supports a positive short-term outlook for the dollar.
Elsewhere, the EUR/USD pair remained relatively stable at 1.1067, following a sharp drop on Tuesday, its largest decline in nearly four months. This decline was driven by falling inflation in the eurozone, which may prompt further action from the European Central Bank.
Recent data showed that inflation in the eurozone dropped below the European Central Bank’s target of 2% for September, prompting traders to closely watch for comments from ECB officials to gain insight into future monetary policy.
Reports suggest that the ECB might cut interest rates by 25 basis points at its upcoming meeting on October 17, with further cuts expected in December and through 2025, potentially bringing the interest rate to 1.5% by September 2025.
The British pound saw a modest rise of 0.1% to 1.3293, though it remains well below last week’s high of 1.3430, a level not seen since February 2022. This week is expected to be relatively quiet in terms of UK economic data.
In Japan, the yen fell 0.3% against the U.S. dollar to 144.06, following comments from Japan’s new economy minister, who indicated that the Prime Minister expects the Bank of Japan to conduct a thorough economic assessment before making any decisions on raising interest rates again. The minutes from the Bank of Japan’s July meeting revealed that policymakers are divided on the pace of future rate hikes.
Finally, the U.S. dollar edged higher against the Chinese yuan, reaching 7.0185, while Chinese markets remain closed until next Tuesday due to the Golden Week holiday.
