Investing.com – The U.S. dollar edged lower on Thursday but remained near a three-month high, buoyed by expectations for a slower pace of Federal Reserve rate cuts ahead of the upcoming U.S. presidential election.
At 04:05 ET (08:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 104.095, not far from levels last seen in late July were seen.
Beige Book helps the dollar
The dollar is in demand as recent economic data suggests the US economy is holding up quite well, suggesting the Federal Reserve may be less aggressive in its easing than previously expected.
Federal Reserve data released Wednesday said economic activity has changed little since early September, while the labor market continued to show signs of strength.
The unchanged outlook for the economy comes amid a raft of stronger economic data released recently, including September’s stronger jobs report and retail sales.
Markets are currently pricing in a cut of just under 50 basis points for the rest of the year, pointing to a likely cut of 25 basis points in November.
What also helps the US currency is the proximity to the US presidential elections, as investors are also increasingly positioning themselves ahead of the polls early next month.
“Volatility is likely to increase during the November 5 election,” ING analysts said in a note, “and assuming Donald Trump continues to perform well in the polls, the dollar should remain bid.”
Euro rises after PMI data
In Europe, it rose 0.2% to 1.0797 as traders digested the latest data on economic activity from the eurozone.
The news remained grim, with figures falling from 48.6 in September to 47.3 in October, but offering some hope: the country’s composite PMI figures rose to 48.4 in October, up from 47.5 the month before and the expected 47.6.
Although the figures are below 50, and therefore still in contraction territory, they indicate an improvement in the region’s main economy.
That said, the ECB has already cut rates three times this year from record highs, and further easing at each of its upcoming meetings this year seems likely.
“Now that inflation has been suspended and business confidence is low, this is fertile ground for the ECB doves,” ING said. “For now we see something like 1.0765-1.0850 EUR/USD.”
rose 0.3% to 1.2961, bouncing after the pair fell to a more than five-week low from the previous session, ahead of the release of October UK PMI data.
Yen gets support
fell 0.4% to 152.19, retreating slightly after rising to a nearly three-month high in the previous session.
The yen gained some support after Japanese government officials warned of “one-sided” moves in the currency markets in light of the yen’s recent weakness. Their comments raised some fears of intervention in the foreign exchange market.
fell 0.2% to 7.1111, with the yuan recovering slightly from a near two-month high earlier this week, with focus shifting to an upcoming meeting of China’s National People’s Congress for more clues on budget spending.
