New York – The dollar reached a three-month peak against the yen on Tuesday, though it held steady against most other major currencies. Investors appeared cautious ahead of next week’s U.S. election and a wave of upcoming economic data releases.
The yen has been pressured recently due to Japan’s ruling coalition losing its parliamentary majority, raising questions around Japan’s political and economic strategies. By late Tuesday, the dollar had gained 0.12%, standing at 153.47 yen. The Bank of Japan (BOJ) is expected to maintain its current rate policy in its announcement on Thursday.
Key economic indicators expected this week include the U.S. core personal consumption expenditures (PCE) price index for September, the Federal Reserve’s main inflation gauge, as well as several employment reports. Meanwhile, the dollar is on track for its strongest monthly gain against a range of currencies in over two years, holding near recent highs as markets await data that could influence Federal Reserve policy.
The latest U.S. Labor Department report revealed a significant drop in job openings, the lowest level in over three and a half years, alongside downward revisions for the previous month. U.S. consumer confidence, however, surged to a nine-month high in October amid improving labor market perceptions.
Helen Given, associate director of trading at Monex USA, noted, “While we’ve observed an ongoing slowdown in job growth over recent months, September’s payroll numbers still exceeded expectations.” She also pointed out that the dollar’s downside might remain limited given the upcoming Nov. 5 election and the Fed’s post-election meeting.
Recent economic indicators highlight the strength of the U.S. economy, with Treasury yields rising amid market sentiment leaning toward a potential win for Republican candidate Donald Trump over Democratic contender Kamala Harris. As of October, the dollar index climbed 3.6%, marking its best monthly performance since April 2022, now standing at 104.34. The dollar has strengthened against every major currency this year except the pound.
“We’re in election mode,” stated Marvin Loh, senior global market strategist at State Street in Boston. “Everyone is anticipating a close race, as has been the narrative for a while.”
Countdown to the UK Budget
Sterling rose slightly, up 0.26% to 1.3006, ahead of the Labour government’s upcoming budget announcement. Finance Minister Rachel Reeves and Prime Minister Keir Starmer have emphasized the importance of fiscal discipline to manage the UK’s public finances, aiming to reassure investors following past financial turbulence linked to former Prime Minister Liz Truss’s economic plans.
Sterling’s performance will be influenced by the British Office for Budget Responsibility’s forecasts, which provide the foundation for the government’s tax and spending strategies.
Elsewhere, the euro remained stable at $1.0815 against the dollar and dipped by 0.27% against the pound at 83.13 pence.
In the Asia-Pacific, the Chinese yuan hovered near its weakest point against the dollar since mid-August, showing little immediate reaction to news that Beijing might soon introduce over $1.4 trillion in new debt. This anticipated fiscal package, expected to be approved by China’s Standing Committee of the National People’s Congress by mid-November, is aimed at bolstering economic stability.
Dan Tobon, head of G10 FX strategy at Citi in New York, cautioned that currency markets might experience volatility leading up to next week as they await U.S. election outcomes.
