Dollar edges higher with key data due for release; yen retreats

Investing.com - The U.S. dollar edged higher Monday, trading in a steady fashion ahead of the release of key U.S. economic data following the ending of the government’s shutdown, with the Federal Reserve holding its final policy meeting of the year next month.

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 99.282, bouncing after a weekly fall.

Dollar awaits key data releases

The focus this week will be on various U.S. data releases for clues on the health of the world’s largest economy, with the closely-watched September’s nonfarm payrolls report due on Thursday.

This follows the end of the U.S. government shutdown, which had delayed the release of numerous data releases, depriving the markets as well as Fed officials of clarity about the health of the world’s largest economy.

“In a week when we should finally start to see US data releases coming through, it is important to note that the outcome of the next Fed rate decision in December looks better priced at a 50% chance of a cut,” said analysts at ING, in a note.

“That means that the dollar probably does not have to rally too much on the FOMC minutes released this Wednesday and can take its cue from Thursday’s jobs report.”

There are also a lot of Fed speakers due this week. 

“A repeat of the Fed’s recent message that it should not rush into further rate cuts and some uncertainty as to where the neutral policy rate actually sits is probably a mild dollar positive,” ING added.

Euro retreats from highs

In Europe, EUR/USD traded 0.2% lower to 1.1601, slipping back from the two-week high seen last week. 

The next important set of releases for the euro will be Friday’s flash PMIs for November. 

“Remember, these have been holding up quite well and are suggesting that businesses could be learning to live with the uncertain international environment here,” ING added.

“The stronger dollar has dragged EUR/USD back to 1.1600. We would expect some demand to come in should it correct lower to the 1.1560/80 area.”

GBP/USD traded 0.1% lower to 1.3162, with sterling stabilizing to a degree following the sharp swings seen at the end of last week on news that Finance Minister Rachel Reeves has no plans to raise income tax rates in the upcoming budget.

Reeves is expected to need to raise tens of billions of pounds to stay on track to meet her fiscal targets in the November 26 annual budget.

Yen retreats after Japanese GDP data 

In Asia, USD/JPY edged 0.1% higher to 154.68, after earlier data showed that Japan’s economy contracted in the third quarter at an annualised decline of 1.8% -- weaker than earlier quarters but slightly better than the median forecast of a 2.5 % drop.

On a quarter-on-quarter basis, GDP fell 0.4%, which was slightly smaller than economists had forecast but still pointed to a loss of momentum.

The contraction was driven by weaker exports that reflected the impact of recently imposed U.S. tariffs. Private consumption contributed little to growth and rose only modestly due to persistent inflation pressures faced by households.

The only strong component within the data was capital expenditure, which increased and suggesting that companies remain willing to invest despite the trade headwinds.

USD/CNY traded 0.1% higher to 7.1045, while AUD/USD gained 0.1% to 0.6534.