The dollar was set for its third consecutive weekly gain on Friday, bolstered by a dovish European Central Bank (ECB) and strong U.S. economic data, which is pushing back expectations for rate cuts, particularly if Donald Trump wins the presidency.
In contrast, a batch of economic data from China, including third-quarter growth figures, received a muted market response. However, subsequent comments from the People’s Bank of China detailing Beijing’s stimulus measures helped lift Chinese assets broadly.
U.S. data released on Thursday showed consumer spending exceeded expectations last month, reinforcing the view that U.S. interest rates may not need to drop as quickly as previously anticipated. Meanwhile, the ECB cut eurozone interest rates by a quarter point, aligning with expectations, due to a slowdown in economic growth across the region.
The euro, trading near its lowest levels since early August, is headed for its largest three-week decline against the dollar since 2022, down roughly 3%. Traders are now pricing in back-to-back rate cuts for the ECB’s upcoming meetings.
Adding to the dollar’s strength is the increasing possibility of a Trump victory in the November election, with his proposed tariffs and tax policies expected to keep U.S. interest rates elevated.
“I think there is potential for further decline in the euro,” said Fiona Cincotta, market strategist at City Index. “Given where inflation is, and the deteriorating economic outlook, the ECB is focusing on trying to support the economy.” She predicted the euro could fall to $1.08.
The euro rose 0.16% to $1.0848, but it has fallen in 14 of the last 16 sessions. Four sources told Reuters that another ECB rate cut in December is likely unless economic data changes significantly.
Chinese markets, meanwhile, were disappointed by the lack of new details on economic revival plans, with the yuan headed for its largest weekly fall in over 13 months. The currency edged up slightly after the People’s Bank of China launched the Securities, Fund, and Insurance Swap Facility and signaled potential further monetary easing.
China’s third-quarter growth slightly exceeded expectations, but property investment declined by over 10% for the first nine months of the year. Retail sales and industrial production showed improvement in September. “The overall tone is actually not bad,” said Ho Woei Chen, economist at UOB. “The focus is on the size of the fiscal stimulus the government will implement.”
The offshore yuan was last at 7.1190, with the dollar down 0.24%. The Australian dollar, often viewed as a proxy for the yuan, rose 0.26% to $0.6713.
The dollar traded 0.14% lower against the yen at 150.00, while the pound strengthened by 0.27% to $1.3045 after UK retail sales outperformed expectations in September, offering some optimism for the British economy.
Bitcoin, benefiting from Trump’s prospects and his perceived softer stance on crypto regulation, was last at $67,826, up more than 10% since October 10.