The U.S. dollar edged lower in early Thursday trading, weighed down by growing market expectations of additional interest rate cuts by the Federal Reserve, while signs of easing political tensions in France pushed the euro to its highest level in a week.
At 04:45 ET (08:45 GMT), the U.S. Dollar Index — which measures the greenback against six major currencies — was down 0.2% at 98.342, putting it on track for a weekly loss of around 0.3%.
Markets Brace for More Fed Easing
Investors are increasingly confident that the U.S. central bank will follow its recent rate cut with further monetary easing, as data continues to point to slower economic growth.
Fed Chair Jerome Powell warned earlier this week that the U.S. labor market is under mounting strain, stating that “the downside risks to employment have risen.”
The Fed’s Beige Book — a closely watched economic survey — also highlighted a slight loss of momentum across the U.S. economy over the past eight weeks.
“Last night’s release of the Fed’s Beige Book suggests the Fed will have enough evidence to cut rates at the end of the month – even if official data releases remain suspended because of the government shutdown,” analysts at ING said in a note.
Futures markets now fully price in a 25 basis-point cut at the Fed’s October 28–29 meeting and another in December, with three more cuts expected in 2026, according to LSEG data.
Last month, the Fed lowered its benchmark rate for the first time since December, bringing the federal funds target range down to 4.00%–4.25%.
Traders are also keeping a close eye on the trade standoff between Washington and Beijing, ahead of a meeting between Presidents Donald Trump and Xi Jinping at the APEC summit in South Korea at the end of October.
“The question for financial markets is whether China’s proposed export controls on rare earths are merely part of a bargaining ploy to achieve greater concessions from the U.S. Or really whether it is a threat which would stick and greatly disrupt global supply chains, given rare earths’ role in products like semiconductors,” ING added.
Euro Strengthens on French Political Relief
The euro traded higher, with EUR/USD climbing 0.1% to 1.1659 — its strongest level in a week — after signs that French Prime Minister Sébastien Lecornu is likely to survive two no-confidence votes later Thursday by agreeing to delay pension reform, a key demand from the Socialist Party.
“The euro and French government bonds see this as good news for the short term, although for the longer term the reversal of pension reforms merely makes the job of fiscal consolidation that much harder,” ING said.
“It’s hard to see EUR/USD breaking above the 1.1685/1730 area in the near term. However, the longer EUR/USD can consolidate here, the closer it comes to the seasonally bullish period of November and especially December. We retain a 1.20 year-end call.”
Sterling Rises as U.K. Returns to Growth
GBP/USD advanced 0.3% to 1.3436 after fresh data showed a slight rebound in the British economy in August. According to the Office for National Statistics, U.K. GDP grew by 0.1% month-on-month, following flat growth in July.
Yen Advances on Political Uncertainty
USD/JPY slipped marginally to 151.06 as doubts grew over the leadership of Sanae Takaichi. Although Takaichi was elected head of the ruling Liberal Democratic Party (Japan), opposition parties are reportedly considering putting forward their own prime ministerial candidate.
Takaichi’s path to leadership has also been complicated by the sudden withdrawal of coalition partner Komeito last week.
USD/CNY eased slightly to 7.1253 as the Chinese currency stabilized, supported by a series of strong midpoint fixes by the People’s Bank of China.
Trade tensions remain a key factor after Trump recently threatened to impose 100% tariffs on Chinese imports.
Aussie Falls After Weak Jobs Report
AUD/USD dipped 0.1% to 0.6503 after September labor data disappointed. Australian employment growth came in below expectations, and unemployment unexpectedly rose to a four-year high, with August figures revised downward.
The weak report reinforced bets that the Reserve Bank of Australia may move to cut rates in early November in an effort to stabilize the labor market.
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