Dollar Declines Slightly, Yet Remains on Track for Weekly Gain

The U.S. dollar experienced slight losses on Friday but is still poised for weekly gains as traders reevaluate potential Federal Reserve rate cuts following a strong payroll report.

At 04:30 ET, the Dollar Index, which measures the greenback against a basket of six other currencies, was down 0.2% at 102.594. For the week, the index is on track for a 0.4% increase, building on the previous week’s over 2% rise.

Upcoming PPI Data

The dollar has seen increased demand since last week’s robust payroll report, leading many traders to discount the possibility of a significant interest rate cut by the Federal Reserve at its next meeting. Although the spike in initial jobless claims raised some concerns about the labor market’s health, a rise in the consumer price index highlighted ongoing inflation concerns.

Producer price index data is expected later in the session, likely showing modest gains, but uncertainty remains after September’s consumer inflation came in stronger than anticipated. Currently, the odds for a quarter-point Fed rate cut on November 7 have risen to 83.3%, up from 80.3% a day earlier.

British Economy Shows Growth

In Europe, the GBP/USD pair edged up 0.1% to 1.3068, following data that indicated the UK economy returned to growth in August after two months of stagnation. The UK’s gross domestic product grew by 0.2% month-on-month in August and increased by 1.0% year-on-year. The economy appears to be on track for a third consecutive quarter of growth, with upcoming data for September GDP needing to show a monthly decline of 0.3% to 0.6% to prevent a flat quarterly reading.

The EUR/USD pair climbed 0.1% to 1.0944, after German consumer inflation eased to 1.8% in September, confirming earlier data. With inflation in Germany falling below the European Central Bank’s target and economic growth stagnating, expectations are mounting for the ECB to ease policy again next week, following two rate cuts earlier this year. Analysts noted that while arguments against a rate cut exist, the consensus leans heavily towards a 25 basis point reduction.

Yuan Recovery Ahead of Announcement

The USD/JPY pair dipped 0.1% to 148.75, having approached 150 yen earlier in the week, a level not seen since early August. The USD/CNY pair fell 0.2% to 7.0672, with the yuan appreciating slightly ahead of a finance ministry briefing, where plans for fiscal stimulus are set to be discussed. Analysts anticipate that Beijing will announce at least 2 trillion yuan ($283 billion) in fiscal support, primarily aimed at bolstering private consumption.