Dollar crept up on Thursday, extending its gains from the previous day, as investors anticipated U.S. labor and inflation statistics for any softness that could signal a slowdown in rate hikes and weaken the currency after months of strength.
The euro fell somewhat to $0.9859 following the publication of European Central Bank meeting minutes from last month, which revealed that policymakers were concerned that inflation could become entrenched at unusually high levels.
While the dollar held stable against the Swiss franc and the Japanese yen, the value of sterling fell by 0.6%.
Following a tumultuous third quarter, currency markets have been struggling to establish a clear direction this week. Prior to gaining headway, the dollar originally fell against the majority of the majors.
According to Stephen Gallo, European Head of FX Strategy at BMO Capital Markets, “Sentiment was very pessimistic in late Q3, could go nowhere but up, and did go up in early Q4, prompted by the Bank of England intervening (in British government bond markets).”
“Where we are right now is that. We don’t really have compelling fundamental reasons to buy sterling, the euro, or the yen aggressively, but we all understand that the dollar is costly and that the Fed may be mistaken and that a change in course is necessary.”
Despite falling from a 20-year high of 114.78 reached in late September, the dollar index was up 0.3%.
Currency markets are currently being heavily influenced by shifting expectations over how quickly central banks, in particular the Federal Reserve, would raise interest rates.
A crucial question is whether they will change course from focusing largely on inflation and boosting rates quickly to also taking slower economic growth into account and raising rates more cautiously.
As a result, Friday’s U.S. jobs report and next week’s inflation statistics will be extensively scrutinized.
