The U.S. dollar hovered close to an 11-week high against major currencies on Friday, buoyed by robust economic data from the U.S. and growing speculation over a potential election victory for former president Donald Trump. While Asian stock markets reflected mixed sentiments, with Japan’s Nikkei benefiting from a weaker yen, other markets remained cautious as investors anticipated significant economic data from China later in the day.
The dollar index, which measures the strength of the U.S. currency against a basket of six major counterparts including the euro and yen, remained steady at 103.78 after peaking at 103.87 on Thursday—the highest level since August 2nd. The dollar’s strength has been attributed to positive economic data from the U.S., which suggested resilience in the economy despite ongoing inflationary pressures.
U.S. retail sales, a key indicator of consumer demand, surged by a stronger-than-expected 0.4% in September, outpacing the modest 0.1% increase in August. This uptick in consumer spending was complemented by a sharp drop in initial jobless claims, which fell by 19,000 to a seasonally adjusted 241,000 last week. These figures reassured investors that the U.S. economy continues to show resilience in the face of rising interest rates and inflationary concerns.
Such robust data has provided the Federal Reserve with greater flexibility regarding its interest rate policy. According to the CME Group’s FedWatch Tool, traders now see a 74% chance of a 50-basis-point rate cut across the Fed’s two remaining meetings this year, down from the previous day’s odds of 85.6%.
“Strong retail sales data has provided the Federal Reserve with more room to maneuver regarding future rate decisions,” explained James Kniveton, senior corporate FX dealer at Convera.com. “Unlike the eurozone, the U.S. does not have to adjust its monetary policy primarily to support the economy, which puts the dollar in a more favorable position.”
Speculation surrounding the upcoming U.S. presidential election is also impacting market sentiment. Recent polling shows that the gap between Democratic candidate Kamala Harris and Republican contender Donald Trump has narrowed. Harris’s lead has shrunk from seven points in late September to just three points, according to a Reuters/Ipsos poll. Additionally, Trump’s policies, particularly on tariffs and immigration, are seen by some market participants as potentially inflationary, which could support the dollar’s strength in the event of his re-election.
“The USD is well-positioned to extend its rally as markets begin to price in the possibility of a Donald Trump victory,” said Tony Sycamore, an analyst at IG.
The dollar’s rise came at the expense of other major currencies, particularly the Japanese yen and the euro. The yen continued to weaken, with the dollar easing 0.15% to 150.02 yen, after briefly surpassing the psychological threshold of 150.32 yen overnight—the first time it had breached this level since August 1st. A weaker yen has historically been a positive development for Japanese exporters, which was reflected in the rally of Japan’s Nikkei stock index.
Meanwhile, the euro remained largely flat, trading at $1.08315 after briefly dipping to $1.0811 in the previous session, marking its lowest point since early August. The European Central Bank (ECB) recently cut interest rates by 25 basis points as anticipated, with some reports suggesting further cuts could be on the horizon. Four sources close to the ECB indicated that additional rate cuts are likely in December, as the central bank seeks to bolster the sluggish eurozone economy.
Asian equities displayed a mixed performance on Friday, reflecting varied responses to both local and global economic conditions. Japan’s Nikkei 225 index gained 0.4%, supported by the yen’s continued weakness. The depreciation of the yen has traditionally been favorable for Japan’s export-driven economy, as it boosts the competitiveness of Japanese goods abroad.
However, other major Asian markets were less optimistic. Australia’s benchmark ASX 200 slipped by 0.7%, while South Korea’s KOSPI edged down slightly by 0.05%. Investors remained cautious, awaiting a slew of high-profile economic data from China, which was due to be released later in the day.
Chinese and Hong Kong markets had yet to open, but all eyes were on the economic data set to be released at 0200 GMT. Analysts expect the data to show a slowdown in China’s economic growth, which could jeopardize Beijing’s target of approximately 5% growth for the year. While the Chinese government unveiled its largest stimulus package since the pandemic in late September, the lack of detailed implementation plans has left many investors skeptical about its effectiveness in supporting the economy.
The Chinese government’s stimulus measures include a range of fiscal policies designed to spur consumption and investment, but without concrete follow-up actions, markets have remained uncertain. The country’s real estate sector, a major driver of economic growth, continues to face headwinds, adding further pressure on the broader economy.
Gold prices held steady on Friday, maintaining close proximity to the record high of $2,696.59 per ounce that was reached overnight. The precious metal traded at $2,693.02 per ounce as of the latest session. Gold is traditionally seen as a hedge against inflation and geopolitical uncertainty, and its recent rally is largely attributed to concerns over future inflationary pressures, combined with ongoing market speculation surrounding the U.S. presidential election.
Meanwhile, crude oil futures edged higher on Friday, supported by a surprise drop in U.S. oil inventories and rising geopolitical tensions in the Middle East. Brent crude futures rose by 16 cents to trade at $74.61 per barrel, while U.S. West Texas Intermediate (WTI) crude prices increased by 17 cents to reach $70.84 per barrel.
Despite the minor gains, oil prices were headed for their largest weekly loss in more than a month. Investor concerns over weakening global demand have overshadowed the recent rally, as fears of slower economic growth in key markets such as China continue to weigh on sentiment. Additionally, recent actions by the Organization of the Petroleum Exporting Countries (OPEC) have failed to provide long-term support to prices, with market participants questioning the cartel’s ability to stabilize the market in the face of sluggish demand.
As the dollar continues its upward trajectory, buoyed by positive U.S. economic data and growing election-related speculation, global markets remain in a state of flux. Asian equities reflect this uncertainty, with Japan’s Nikkei benefiting from the weaker yen, while other regional indices falter amid cautious sentiment. The euro and yen remain under pressure from the strengthening dollar, as the European Central Bank and Bank of Japan maintain dovish monetary policies to support their respective economies.
