Forex - Weekly outlook: 10.30 - 11.03
The dollar pared gains against a basket of the other major currencies on Friday after rising to the highest level in over three months on data showing that the U.S. economy grew more than expected in the third quarter.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.18% at 94.72 in late trade.
The index hit a high of 95.06 earlier in the session, its strongest level since July 17. For the week the index was still up 1.33%, its largest weekly increase so far this year.
The dollar eased following a report that U.S. President Donald Trump is considering nominating Federal Reserve Governor Jerome Powell to lead the U.S. central bank, a move that would signal continuity for monetary policy.
Powell is seen less hawkish than Stanford University economist John Taylor, another potential nominee to lead the Fed.
The dollar rose earlier after the Commerce Department reported that the U.S. economy grew at a 3% annual rate in the third quarter, better than forecasts for growth of 2.5%.
The stronger-than-expected reading underlined the case for the Fed to raise interest rates at a faster pace in the coming months. Higher rates tend to make the dollar more attractive to yield seeking investors.
The dollar had already received a boost on Thursday after House Republicans passed a budget blueprint for 2018, setting the stage for a tax overhaul. Some investors believe tax reforms could bolster growth and prompt the Fed to raise rates at a faster pace.
USD/JPY was down 0.25% at 113.62 late Friday, off a more than three month high of 114.43.
The euro was lower against the dollar, with EUR/USD at 1.1608 in late trade. For the week the euro was down 1.48%, its largest weekly loss since March.
The euro remained on the back foot after the European Central Bank said Thursday it is extending its bond purchases into September 2018 while reducing monthly bond purchases by half to 30 billion euros per month from January.
The single currency was also pressured lower after Catalonia’s parliament on Friday declared independence from Madrid. The move prompted Spain’s prime minister to sack the Catalan government and call elections next month.
Elsewhere, sterling pulled back after falling to the lowest level in three weeks against the dollar. GBP/USD was at 1.3128 late Friday after falling as low as 1.3071 earlier.
The pound was pressured by the prospect of a dovish rate hike, one which will not be followed by further rate rises, ahead of the upcoming Bank of England policy meeting.
In the week ahead, investors will be focusing on Wednesday’s Fed meeting for fresh clues on the likely trajectory of monetary policy. Friday’s U.S. jobs report for October will also be closely watched.
Thursday’s BoE meeting will also be in focus along with euro zone growth and inflation data on Tuesday.
Monday, October 30
Germany is to release preliminary inflation data and a report on retail sales.
The UK is to report on net lending.
The U.S. is to release data on the core personal consumption expenditures price index and personal spending.
Tuesday, October 31
New Zealand is to publish a report on business confidence.
China is to publish official data on manufacturing and service sector activity.
The Bank of Japan is to announce its benchmark interest rate and publish a rate statement which outlines economic conditions and the factors affecting the monetary policy decision. The announcement is to be followed by a press conference.
The euro zone is to publish preliminary data on inflation and third quarter economic growth.
Canada is to release data on economic growth and raw material price inflation. Later in the day, Bank of Canada Governor Stephen Poloz is to testify before the House of Commons Standing Committee on Finance, in Ottawa.
The U.S. is to release a string of reports including data on the employment cost index, business activity in the Chicago region and consumer confidence.
Wednesday, November 1
The UK is to release a report on manufacturing activity.
The U.S. is to release the ADP nonfarm payrolls report and later in the day the Institute for Supply Management is to publish its manufacturing index.
The Fed is to announce its benchmark interest rate and publish a rate statement which outlines economic conditions and the factors affecting the monetary policy decision.
Thursday, November 2
Australia is to release data on the trade balance and building approvals.
The UK is to release a report on construction activity.
The Bank of England is to announce its latest interest rate decision and publish its meeting minutes. BoE Governor Mark Carney is to hold a press conference to discuss the decision.
The U.S. is to release the weekly report on initial jobless claims along with data on labor productivity and costs.
New York Fed President William Dudley is to speak.
Friday, November 3
Financial markets in Japan will be closed for a holiday.
Australia is to report on retail sales.
China is to publish its Caixin services index.
The UK is to release a report on service sector activity.
Canada is to release its latest employment report along with trade data.
The U.S. is to round up the week with the nonfarm payrolls report for October as well as data on trade and factory orders and the ISM is to publish its non-manufacturing index.