The U.S. dollar inched higher on Monday, recovering part of last week’s slide as traders turned cautious ahead of the upcoming inflation report and kept a close eye on the health of regional banks.
At 04:15 ET, the Dollar Index, which measures the greenback against a basket of six major peers, was up 0.1% at 98.270, after suffering its steepest five-day drop since late July.
Dollar steadies ahead of CPI
The currency has found some support thanks to a rebound on Wall Street, even as renewed stress around U.S. regional banks has unsettled markets. Concerns were reignited after two lenders — Zions Bancorporation (NASDAQ:ZION) and Western Alliance Bancorporation (NYSE:WAL) — flagged loan issues linked to fraud.
“Concerns about the health of regional banks and the broader quality of credit in the U.S. remain very central for FX markets,” said analysts at ING in a note.
“Indications that lending issues don’t extend beyond Zions Bancorp and Western Alliance could offer some further relief to the dollar, but it might not be enough to fully price out concerns about the underlying health of the credit market and have the greenback reclaim all losses.”
Attention is also turning to Friday’s release of the delayed September consumer price index, expected despite the ongoing government shutdown.
“We are aligned with consensus in expecting a 0.3% MoM core read – which should further endorse a 25bp cut by the Fed next week,” said ING. “Barring major deviations from consensus, the inflation release should not have major FX implications, with jobs markets playing a more important role for rate expectations.”
Euro holds steady on political calm in France
EUR/USD edged up 0.1% to 1.1659, as the euro stabilized following a temporary easing of political tensions in France. Prime Minister Sébastien Lecornu survived two no-confidence votes last week after agreeing to postpone a controversial pension reform.
“The calm on the French political side allowed the euro to recover a bit, but it’s hard to get too comfortable with France. S&P downgraded the country from AA- to A+ in an unscheduled move on Friday,” said ING.
Meanwhile, fresh data showed German producer prices fell 0.1% in September from the previous month, dropping 1.7% year-on-year — a sign of weak underlying price pressures in Europe’s largest economy.
Sterling softens slightly ahead of budget
GBP/USD slipped 0.1% to 1.3421 as investors await further details ahead of the U.K.’s November budget.
“Expect a steady flow of information about the content of the November budget in the coming weeks. That appears like a double-edged sword for sterling. Any concerns about fiscal sustainability will hit back-end gilts and spill over into the pound, while higher taxation should dampen growth and raise chances of earlier BoE easing,” said ING.
Yen weakens on rising Takaichi expectations
USD/JPY climbed 0.1% to 150.81, with the yen under mild pressure amid growing speculation that Liberal Democratic Party leader Sanae Takaichi will become Japan’s next prime minister.
Takaichi is viewed as a fiscal dove, signaling increased government spending and looser financial conditions in the months ahead. She is also expected to oppose further interest rate hikes by the Bank of Japan, which meets next week.
Yuan slips slightly after GDP data
USD/CNY eased marginally to 7.1242 after GDP data showed the Chinese economy grew slightly more than expected in the third quarter.
GDP rose 4.8% year-on-year, above forecasts of 4.7% but down from 5.2% in Q2 — marking the slowest pace since the third quarter of 2024.
Even so, year-to-date growth remains above Beijing’s 5% target, supported by exports, though weak consumer spending and private investment continue to weigh on momentum.
Aussie dollar inches up
AUD/USD added 0.1% to 0.6501, with the risk-sensitive currency advancing slightly as broader sentiment in Asian markets improved.
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