Investing.com – The U.S. dollar retreated from elevated levels Wednesday, pausing its recent rally ahead of the release of key macroeconomic data that could alter expectations for future Fed rate cuts.

At 05:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 104.037, after reaching the highest since the end of July on Tuesday.

Dollar slips with labor data in demand 

The dollar has been climbing of late as recent economic readings have pointed to a resilient economy, resulting in traders paring back their views on the pace of rate reductions by the Federal Reserve.  

The labor market has been particularly in the spotlight, and data released on Tuesday showed were lower than anticipated in September, slipping to their lowest level since January 2021.

This weighed on the dollar overnight, as a slowing labor market could bolster the case for the Federal Reserve to once again slash interest rates in November.

The is due later Wednesday, ahead of the weekly on Thursday, and then the potentially crucial monthly report on Friday.

The advance release of the third-quarter release is also due later in the session, and is expected to show continued solid growth in the largest economy in the world.

Euro helped by German GDP

In Europe, edged 0.3% higher to 1.0850, helped by stronger than expected German third-quarter growth data. 

Germany’s unexpectedly grew by 0.2% in the third quarter compared with the previous three-month period, a considerable improvement from the 0.1% quarter-on-quarter decrease expected.

The German Chamber of Commerce and Industry forecast Tuesday that the largest economy in the eurozone will contract by 0.2% this year, cutting its previous forecast for a stagnation published in May.

The has cut rates three times this year, and is expected to cut again at its next meeting.

edged lower to 1.3011, ahead of the UK budget later in the session, the first for the new Labour Government.

Finance Minister Rachel Reeves is expected to raise taxes as well as spending, and there is a degree of wariness two years after then-Prime Minister Liz Truss’ tax-cutting plans sparked a crisis in the bond market.

Yen awaits BOJ meeting

fell 0.2% to 153.12, with the pair retreating after nearly reaching 154 in overnight trade. 

Weakness in the yen came before the conclusion of a meeting on Thursday, where the central bank is widely expected to leave rates unchanged.

Heightened political uncertainty in Japan is expected to cloud the BOJ’s plans to raise rates further after two hikes earlier this year. 

fell 0.1% to 7.1241, with the focus this week was on purchasing managers index data from the country, which comes at the heels of several new stimulus measures from Beijing that were rolled out through October. 

China’s National People’s Congress is also due in early-November, which is expected to offer more cues on the government’s plan to increase fiscal spending.

Investing.com– Most Asian currencies moved little on Wednesday as the dollar steadied with focus squarely on the upcoming presidential election and a string of key economic readings.

The Japanese yen also traded sideways after sinking to three-month lows, with focus turning to the conclusion of a Bank of Japan meeting on Thursday. 

Regional currencies were nursing steep losses in recent weeks as traders turned increasingly risk-averse in anticipation of a tight U.S. presidential race.

A string of key U.S. economic readings are also due this week, coming before a where the central bank is widely expected to cut rates by a smaller 25 basis points. 

The and steadied in Asian trade after hitting three-month highs earlier this week. 

Japanese yen fragile as BOJ meeting looms 

The Japanese yen was flat on Wednesday, with the pair hovering around 153 yen after nearly reaching 154 yen in overnight trade. 

Weakness in the yen came before the conclusion of a on Thursday, where the central bank is widely expected to leave rates unchanged.

Heightened political uncertainty in Japan is expected to cloud the BOJ’s plans to raise rates further after two hikes earlier this year. 

Japan’s ruling coalition, led by the Liberal Democratic Party, lost its parliamentary majority in a recent general election, presenting a fractured outlook for Japanese politics.

This uncertainty is expected to push the BOJ into adopting a more cautious approach towards higher rates, while the central bank is also expected to face increased political resistance towards increasing interest rates. 

The yen- which was already nursing losses through October- was battered further by this notion. 

Chinese yuan softens with PMIs, stimulus in focus 

The Chinese yuan weakened slightly on Wednesday, with the pair rising 0.1% and remaining close to two-month highs.

Focus this week was on data from the country, which comes at the heels of several new stimulus measures from Beijing that were rolled out through October. 

Focus is also on a meeting of China’s National People’s Congress in early-November, which is expected to offer more cues on the government’s plan to increase fiscal spending.

Broader Asian currencies moved in a flat-to-low range as traders remained broadly risk-averse. The Australian dollar’s pair fell 0.3% following mixed consumer inflation data that showed fell in the third quarter, but remained sticky.

The South Korean won’s pair was flat, while the Singapore dollar’s pair rose 0.1%.

The Indian rupee’s pair was flat but remained close to record highs above 84 rupees.

By Laura Matthews

NEW YORK (Reuters) -The dollar hit three-month highs against the yen on Tuesday, but was little changed on the day against most major currencies as traders bided their time ahead of next week’s U.S. election and a slew of incoming economic data.

The loss of a parliamentary majority for Japan’s ruling coalition in weekend elections muddied the political and monetary picture, and has been weighing on the yen.

The dollar was last up 0.12% on the day at 153.47 yen. The BOJ announces its monetary policy decision on Thursday, and is widely expected to leave rates unchanged.

This week’s data slate includes the September U.S. core personal consumption expenditures price index – the Fed’s preferred measure of inflation – on Thursday, as well as a flurry of jobs reports.

Still, the dollar is heading for its largest monthly rise against a basket of major currencies in 2-1/2 years and holding near three-month highs ahead of data that could determine the path for Federal Reserve policy.

U.S. Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed job openings fell to a more than 3-1/2 years low in September and data for the prior month was revised down, a sign of a continually cooling labour market.

Meanwhile, U.S. consumer confidence increased to a nine-month high in October as perceptions of the labour market improved.

“We’re still seeing the same pattern of a slowdown in jobs that has been the overall theme for the last few months, even if September’s (nonfarm payroll) number was well above expectations,” said Helen Given, associate director of trading at Monex USA.

She said, however, she thought any downside for the dollar remained limited, given the inherent risk of the Nov. 5 election and Fed meetings the week after next.

Recent data have highlighted the resilience of the U.S. economy, which, together with mounting market bets of a win by Republican candidate Donald Trump over his Democratic rival Kamala Harris in the election, have underpinned the dollar and pushed up Treasury yields.

The has risen 3.6% so far in October, marking its best monthly performance since April 2022. It was last seen at 104.34 and is up this year against every major currency except the pound.

“We’re hostage to the elections,” said Marvin Loh, senior global market strategist, at State Street (NYSE:) in Boston. “We’re still expecting a fairly tight race just as everybody has been saying for quite some time.”

COUNTDOWN TO BUDGET

Sterling edged up 0.26% to 1.3006 ahead of the Labour government’s first budget.

Finance minister Rachel Reeves, along with Prime Minister Keir Starmer, has reiterated the need for tough fiscal measures to help close a hole in British public finances. They are seeking to retain the confidence of investors, two years after then-Prime Minister Liz Truss’ tax-cutting plans sparked a crisis in the bond market.

Key for sterling will be estimates from the British Office for Budget Responsibility, which makes the forecasts that underpin the government’s spending and tax plans.

The euro was little changed at $1.0815 against the dollar and was down 0.27% against sterling at 83.13 pence.

Meanwhile, the , which touched its weakest level against the dollar since mid-August, showed little reaction to the possibility Beijing may issue over $1.4 trillion in new debt as part of a series of measures to shore up the economy.

The yuan was last at 7.15 in the offshore market.

Two sources with knowledge of the matter told Reuters China’s top legislative body, the Standing Committee of the National People’s Congress, is looking to approve a new fiscal package. The package, including 6 trillion yuan which would partly be raised via special sovereign bonds, is expected to be approved on the last day of a meeting to be held from Nov. 4-8.

Dan Tobon, head of G10 FX strategy at Citi in New York, said there’s a risk of choppy trading until next week as markets await U.S. election results.