By Investing.com – The U.S. dollar edged higher Friday, continuing October’s strength, ahead of the release of the widely-watched payrolls report.
At 05:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.025, after gains of well over 2% last month.
Dollar awaits payrolls release
Data released on Thursday showed that inflation by the Fed’s targeted measure, the year-over-year increase in the personal consumption expenditures index, came in at 2.1% in September, down from an upwardly revised 2.3% in August, and close to the Fed’s 2.0% target.
Attention now turns to the US jobs report for October, due later in the session.
Economists are estimating that nonfarm payrolls slipped to 106,000, down from 254,000 in the prior month, while the unemployment rate is tipped to match August’s pace of 4.1%. Average hourly earnings growth is also seen slowing to 0.3% on a month-on-month basis.
However, these numbers could be open to volatility given the potential impact of recent devastating hurricanes and ongoing labor actions.
The Federal Reserve is widely expected to cut interest rates by a quarter percentage point next week, and there would have to be a major surprise from the payrolls release given futures contracts put the chances of a 25 basis point cut next week at 94.7%.
“We expect a slightly negative impact on the dollar, as some of the strength associated with the previous jobs report is priced out and markets may push the Fed pricing back to 50bp of easing by year-end,” said analysts at ING, in a note.
Also of interest has been the run-up to the presidential election on Tuesday, with the dollar benefiting from trades betting Republican candidate Donald Trump will win.
However, the race with Vice President Kamala Harris appears very close, and thus a victory by the Democrat could spark a rash of trading unwinds.
Caution over ECB rate cuts?
In Europe, EUR/USD traded 0.2% lower at 1.0861, handing back some of the previous session’s euro gains after data showed that the eurozone’s inflation accelerated more than expected in October, bolstering the case for caution in European Central Bank interest rate cuts.
The ECB has cut interest rates three times this year, and is widely expected to cut again as the year draws to an end.
“EUR/USD is starting to look a bit expensive in the upper half of the 1.08-1.09 range, and barring a US jobs data-induced push today, we favour some depreciation in the pair into US Election Day, with a move back to 1.0800 as being completely in line with a wide rate differential in favour of USD,” ING added.
GBP/USD rose 0.1% to 1.2917, with traders still digesting the latest UK budget, with British finance minister Rachel Reeves launching massive tax increases.
“Our view is that sterling can drop a bit further as the readjustment to higher bond supply runs its course, but with GBP short-term swap rates having received a lift from the BoE repricing (only one cut expected in 2024 now), rate differentials can soon offer a floor to the pound,” ING added.
Yen slips lower
USD/JPY rose 0.5% to 152.72, with the yen handing back earlier gains after the Bank of Japan maintained ultra-low interest rates but said risks around the U.S. economy were somewhat subsiding.
Governor Kazuo Ueda’s remarks were seen as less dovish than those made before the meeting that the BOJ could “afford to spend time” scrutinising the fallout from risks such as U.S. economic uncertainties.
USD/CNY rose 0.1% to 7.1242, despite China’s manufacturing activity swinging back to growth in October, a private-sector survey showed on Friday.
The Caixin/S&P Global manufacturing PMI rose to 50.3, largely matching the official PMI released earlier in the week.