The US dollar settled at a more than two-month high against major currencies on Tuesday near the levels of 103.35, driven by expectations that the Federal Reserve will cut interest rates less sharply in the near term.
A series of US data has been released over the past period that indicated that the US economy is resilient and slowing only modestly, and inflation rose in September a little more than expected, prompting traders to reduce their bets on significant interest rate cuts by the Federal Reserve, after the Fed had started the monetary easing cycle by 50 basis points at its last meeting, but market expectations turned to a slower pace of cuts, prompting the US dollar to rise again against most major currencies.
The market is now pricing in about an 89% chance of a 25 basis point interest rate cut in November, with 45 basis points of easing priced in overall for the year.
The dollar also received another boost yesterday after Fed member Christopher Waller called for more caution about future interest rate cuts, citing recent economic data from the US economy.
EURUSD
EURUSD is trading near its lowest level since August 8, which it touched yesterday, Monday, as we are waiting for next Thursday's policy meeting of the European Central Bank, at which the central bank seems to be ready to provide another interest rate cut by 25 basis points as forecast.
USDJPY
With the rise of the US dollar, the yen rose and the Japanese yen fell, especially after the dovish turn in the speech from the governor of the Bank of Japan Kazuo Ueda and the sudden opposition to further interest rate hikes by the new prime minister Shigeru Ishiba.
This has cast doubt on when the BOJ will tighten its policies, as the BOJ is now expected to forgo raising interest rates again this year.
GBPUSD
Expectations that stable inflation would keep the Bank of England on a path of gradual interest rate cuts compared to other central banks such as the Fed and the European Central Bank, have pushed the pound-dollar pair lower in recent weeks, with the pound falling by more than 2% during the month.
The Australian dollar and the New Zealand dollar
are falling against the US dollar as the yuan slides to its lowest levels in a month ,The Australian dollar and also the New Zealand dollar struggled to make new gains on Tuesday even as Wall Street rose to a record closing level, as sentiment continued to be affected by the lack of stimulus measures from China after a series of lackluster data and disappointing Chinese stimulus announcements.
The two currencies have been falling against the dollar, and the two currencies are often sold as alternatives to the Chinese yuan as China is the number one trading partner of Australia and New Zealand.
