By Alden Bentley
NEW YORK (Reuters) – The dollar fell broadly in thin pre-holiday trading on Wednesday, paring a slew of indicators underscoring U.S. economic resilience as investors assess the risk that President-elect Donald Trump will launch a tariff war start that no one will win.
The decline further reversed the dollar’s recent rally. Few traders were interested in building or maintaining positions ahead of a long Thanksgiving weekend for many of them leading up to the end of the month. The markets are closed on Thursday and the stock exchanges close early on Friday.
Moreover, revised data showing that gross domestic product rose 2.8% in the third quarter, as expected and in line with last month’s first estimate, did not do much to advance arguments that the Federal Reserve would resume next month to ease, although traders were still leaning. in this way the chance is slightly increased to 67%.
Consumer spending data showing progress in reducing inflation also appears to have shown no signs of stalling in recent months, with the economy retaining much of its solid growth momentum at the start of the fourth quarter.
“We all expected inflation to rise a bit, but inflation is not out of control. And that is the key,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“This paves the way for a 25 basis point cut in December and likely a pause after that. But the pause will likely not be due to inflation data, but to uncertainties about Trump’s tariffs. I think the Fed will become cautious.”
The Commerce Department’s personal consumption expenditure price index rose 0.2% in October, matching September’s unchanged gain. In the 12 months to October, the PCE price index rose 2.3%, after rising 2.1% in September.
While durable goods orders rose a less-than-expected 0.2% in October, jobless claims at 213,000 were slightly lower than last week’s upwardly revised jobless claims, indicating a solid labor market.
The dollar/yen fell to the lowest level in about five weeks, falling 1.43% to 150.91 as trading ended. The weakening dollar lifted the euro 0.74% to $1.0564. The euro/dollar pair hit its highest level in a week, while the , which measures the greenback against a basket of currencies including the yen and the euro, fell to its lowest level since November 13, falling by 0 in afternoon trading. 74% to 106.06. That marked a decline of 1.9% from Friday’s two-year high.
“Today may be more about taking profits, at least for the US over a long weekend. “It’s had, as I said, a phenomenal run here and is still very, very robust,” said Amo Sahota, executive directors of KlarityFX in San Francisco.
Trump’s promises Monday of high tariffs on Canada, Mexico and China, the United States’ three largest trading partners, dragged down their currencies and unnerved investors.
Some analysts argued that inflation risks from tariffs and proposed tax cuts could prevent Trump from ushering in more disruptive measures.
“The recent sharp appreciation of the dollar is largely reducing the value of dollar assets outside the US, increasing the need for rebalancing to sell the dollar at month-end,” said Sheryl Dong, forex strategist at Barclays (LON:).
The outperforming yen has benefited from bets on a rate hike in Japan in December and position adjustments.
The dollar’s sell-off accelerated Wednesday after the pair fell below the 200-day moving average at 151.99.
“I would also consider that, from a purely technical point of view, to be quite important in today’s market,” Sahota said.
Analysts noted there was some relief that the country is not in the firing line of Trump’s possible tariffs.
“Japan has a strong hand in addressing U.S. trade issues,” said Jane Foley, senior forex strategist at RaboBank.
It “is the largest overseas holder of U.S. Treasury securities and the largest provider of foreign direct investment in the U.S.,” she added.
A ceasefire between Israel and the Iran-backed group Hezbollah came into effect on Wednesday under an agreement aimed at ending hostilities over the Israeli-Lebanese border. While not a major factor on Wednesday, the wars in the Middle East and Ukraine supported the dollar as a safe haven.
Against its Canadian counterpart, the dollar fell 0.18% to C$1.4027, after hitting a 4-1/2-year high of $1.4177 on Tuesday.
The dollar was little changed against the Mexican peso, near Tuesday’s high, which was the highest since July 2022, at 20.622 pesos.
The pound sterling strengthened 0.81% to $1.267, the Australian dollar strengthened 0.34% to $0.6494 and the dollar strengthened 1.06% to $0.5896.
The numbers stabilized after falling following Tuesday’s tariff news. The dollar traded 0.15% lower at 7.245 per dollar.
In cryptocurrencies, bitcoin rose 5.19% to $96,414, paring last week’s rise to nearly $100,000.
