Strong GDP data from the U.S that portended a resilient economy helped lift the U.S. dollar in the week ended October 27. The dollar gained against the euro and the British pound but weakened against the Australian Dollar and the Japanese yen, in a week marked by significant economic data releases, monetary policy decisions, simmering geopolitical tensions, firm bond yields and a risk-off sentiment.
Data released by the U.S. Bureau of Economic Analysis on Thursday showed the U.S. economy expanded at an annualized 4.9 percent in the third quarter of 2023 versus 2.1 percent in the second quarter. The growth, which was the most since the last quarter of 2021, exceeded market forecasts of a growth of 4.3 percent. Data released on the same day also showed new orders for manufactured durable goods surging by 4.7 percent month-over-month in September. The reading revealed a higher-than-expected rebound from a 0.1 percent contraction in August. Markets had expected a 1.7 percent rise.
Rising bond yields and safe-haven demand triggered by the geopolitical turmoil in the Middle East also bolstered the Dollar's fortunes. Ten-year bond yields in the U.S. touched a multi-year high of 5.02 percent during the week. Weak risk appetite amidst disappointing corporate results also translated into gains for the greenback.
In this backdrop, the U.S. dollar strengthened over the course of the week spanning October 23 to 27, lifting the Dollar Index (DXY) by around 0.38 percent. The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies rose to 106.56, from 106.16 at the end of the previous week. From the week's low point of 105.36 recorded on Tuesday, the DXY increased to the week's high of 106.89 by Thursday, the day on which the GDP data was released.
Data released on Friday showed the Fed's preferred annual PCE inflation rate steady at 3.4 percent in September and in line with forecasts. The relief dragged the index, and it closed a tad lower at 106.56.
Amidst the dollar's strength and the status quo maintained by the European Central Bank, the EUR/USD pair declined around 0.27 percent during the week ended October 27. The pair closed the week's trading at 1.0564, versus 1.0593 a week earlier. The week's trading range was between a high of 1.0695 and a low of 1.0522.
The pound sterling too suffered declines during the week ended October 27. The GBP/USD pair declined 0.31 percent, dropping to 1.2122, from 1.2160 a week earlier. The pair touched the week's high of 1.229 on Tuesday and the week's low of 1.2069 on Thursday. Data released on Tuesday had shown the unemployment rate in the U.K. at 4.2 percent.
The Aussie however gained in strength against the U.S. Dollar during the past week amidst higher-than-expected inflation readings and speculation about further rate hikes. Data released on Tuesday had shown Australia's inflation falling only to 5.4 percent year-on-year in the third quarter of 2023, versus market forecasts of 5.3 percent. Inflation was at 6 percent in the previous period. Flash PMI readings from Australia that showed declines from the levels in the previous month also swayed currency market sentiment. From the level of 0.6312 at close on October 20, the AUD/USD pair rose to 0.6334 by October 27. The pair's trading ranged between the weekly high of 0.6400 recorded on Wednesday and the weekly low of 0.6270 recorded on Thursday.
The Japanese Yen gained 0.16 percent against the U.S. dollar amidst speculations of another tweak to the yield curve control by the Bank of Japan. Earlier, flash manufacturing PMI readings had showed a steady level whereas services PMI had recorded a dip. Though the USD/JPY pair surged to a high of 150.79, the pair eventually declined during the week, closing at 149.60, from 149.84 a week earlier. The pair touched its weekly low of 149.32 on Wednesday.
The interest rate review by the Bank of Japan is expected to be known later in the day. The USD/ JPY pair has edged up to 149.73 amidst the looming anxiety. The Federal Reserve's monetary policy decision is due on November 1. In tandem with the CME FedWatch tool that shows an overwhelming expectation of a pause by the Fed, the Dollar Index has dropped to 106.35, from 106.56 on Friday. The EUR/ USD pair has increased to 1.0588 whereas the GBP/USD pair has increased to 1.2140 ahead of the Bank of England's monetary policy announcement on November 2. The AUD/USD pair has firmed up to 0.6375.
