Investing.com – The U.S. dollar steadied Monday, on course for a hefty monthly gain, while the euro was steady at the start of an action-packed week.

At 05:35 ET (09:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 104.147, but was on track for a gain of around 4%, its sharpest monthly rise since April 2022.

Dollar in demand at start of key week

The dollar has been in demand of late on growing expectations of smaller U.S. interest rate cuts on the back of reasonably healthy economic data.

This sentiment is likely to be put to the test this week, with US data on Wednesday and, more importantly, the monthly on Friday.

Friday’s employment report is expected to show that jobs growth slowed to a more modest 111,000 in October, reflecting the impact of strikes and weather-related disruptions from Hurricane Helene and Milton. 

The Fed has already telegraphed its intention to cut interest rates by 25 basis points at its November meeting after delivering a 50-bps cut in September, but this week’s economic data could still have some bearing on that decision.

The dollar has also been boosted by the perceived increased likelihood that former president Donald Trump will return to the White House, with this week the final full week ahead of the Nov. 5 U.S. presidential election.

Republican presidential candidate Donald Trump and his Democratic rival, Vice President Kamala Harris are tied in national and swing state polling, but the former president is a slight favourite in election prediction markets.

This week will also see the release of key earnings from five of the “Magnificent Seven” U.S. titans: Google parent Alphabet (NASDAQ:) on Oct. 29, Microsoft (NASDAQ:) and Facebook parent Meta Platforms (NASDAQ:) on Oct. 30, and Apple (NASDAQ:) and Amazon (NASDAQ:) on Oct. 31. 

Euro eyes hefty monthly loss

In Europe, edged 0.2% higher to 1.0819, with the euro on course for a monthly loss of around 3%, amid concerns about the weak regional growth outlook.

The has already cut rates three times this year, each time by 25 basis points, but expectations are growing that the central bank will consider a larger reduction at its next meeting.

These expectations could grow this week if annual , due on Thursday, is confirmed once more below the ECB’s 2.0% target.

traded 0.1% higher to 1.2973, heading for a weekly loss of around 0.5%, also on course for a 3% monthly loss.

The new Labour government unveils its first in the UK on Wednesday, and markets are wary that finance minister Rachel Reeves will turn to extra borrowing and tax grabs as she balances high debt, public spending pledges and a promise not to hike income tax.

Yen weakness on political change

rose 0.5% to 153.09, steadied near three-month highs, with the Japanese yen sliding to a three-month low after the weekend’s parliamentary election.

Reports indicate that the coalition led by Japan’s ruling Liberal Democratic Party did not win a majority in the parliamentary elections held on Sunday. 

The LDP will now have to seek coalitions with smaller regional parties to retain power – a scenario that presents a more fractured political outlook for Japan. 

Traders have bet that increased political uncertainty will keep the from hiking interest rates further, starting later this week – a scenario that bodes poorly for the yen.

rose 0.2% to 7.1305, to an over two-month high, ahead of the release of the Chinese purchasing managers index data later in the week.

Investing.com– Most Asian currencies weakened on Monday with the Japanese yen sliding to a three-month low amid bets that the loss of a parliamentary majority for Japan’s ruling party diminished the prospect of higher interest rates in the country. 

Risk appetite was buoyed by Israel launching a less severe strike on Iran than traders were fearing, with oil prices falling sharply on this notion. 

But this translated into limited gains for regional currencies, as growing expectations of smaller U.S. interest rate cuts kept traders biased towards the dollar.  The greenback rose to a near three-month high on Monday. 

Anticipation of several key economic readings this week- from Asia and the U.S.- still kept overall risk appetite subdued. 

Japanese yen weakens, USDJPY surges after election upset

The Japanese yen was the worst performer in Asia on Monday, with the pair rising 0.9% to 153.68 yen- its highest level since late-July.

The yen was battered by local media reports showing a coalition led by Japan’s ruling Liberal Democratic Party did not win a majority in the parliamentary elections held on Sunday. 

The LDP will now have to seek coalitions with smaller regional parties to retain power- a scenario that presents a more fractured political outlook for Japan. 

Traders bet that increased political uncertainty will keep the Bank of Japan from hiking interest rates further- a scenario that bodes poorly for the yen.

The BOJ is set to and is widely expected to keep rates unchanged, after two hikes earlier in 2024. Recent economic readings also showed Japanese private spending and inflation was cooling after an uptick earlier in the year. 

Dollar strong, Asia FX drifts lower with econ. data on tap 

Broader Asian currencies mostly weakened, while the dollar rose to near three-month highs before a string of key economic readings this week.

The and both added 0.3% each. U.S. , data for the third quarter and data- the Federal Reserve’s preferred inflation gauge- is due later this week. 

In Asian markets, the Chinese yuan’s pair rose 0.2% to an over two-month high. Chinese x data is due later in the week, and is expected to reflect some effects of the barrage of stimulus measures rolled out by Beijing over the past month. 

The Australian dollar’s pair fell 0.3%, with focus on upcoming consumer inflation data for the third quarter. The South Korean won’s pair was flat, while the Singapore dollar’s pair rose 0.3%. 

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

By Chuck Mikolajczak

NEW YORK (Reuters) -The dollar slipped for a second straight session, as a recent ascent lost steam, but the greenback was still on track for a fourth straight week of gains after data this week kept interest rate expectations for the Federal Reserve in check.

The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 0.5% last month after an unrevised 0.3% gain in August and above the 0.1% rise estimated by economists polled by Reuters.

A separate report by the University of Michigan showed October consumer sentiment rose to 70.5 from 70.1, topping the 69.0 estimate, while the one-year inflation outlook fell to 2.7% from the preliminary reading of 2.9% but in line with September’s final result.

The dollar was poised for its fourth straight week of gains, as a run of positive economic data has quieted expectations about the size and speed of the Fed’s rate cuts, which has also lifted U.S. Treasury yields. Investors are now focusing on a key government payrolls report next week.

“We had a massive recalibration in economic expectations for the U.S. and that process seems to have largely run its course, the Fed’s policy trajectory looks much more reasonable and interest rate differentials between the U.S. and other major economies are stabilizing here,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“The , which measures the greenback against a basket of currencies, shed 0.02% to 104.03, with the euro up 0.02% at $1.083.

In Europe, a survey on Friday of German business sentiment showed confidence improved more than expected this month, snapping four straight months of declines, offering hope for some respite towards the end of the year in the economy’s battle with industrial woes and soft global demand.

European Central Bank (ECB) President Christine Lagarde said the euro zone’s inflation is “well on track” to hit the European Central Bank’s 2% target next year, reiterating the bank’s most recent guidance.

The dollar has also benefited from a rise in market expectations for a victory next month by Republican candidate and former U.S. President Donald Trump, which would likely bring about inflationary policies such as tariffs.

Schamotta said that while those policies should support the dollar, that could be already priced in and their negative effects such as inflation could dampen consumer sentiment and weaken the dollar more than markets had expected two weeks ago.

Markets are pricing in a 95.6% chance for a cut of 25 basis points at the Fed’s November meeting, with a 4.4% chance of the U.S. central bank holding rates steady, according to CME’s FedWatch Tool. The market was completely pricing in a cut of at least 25 bps a month ago, with a 57.4% chance of a 50 bps cut.

Against the Japanese yen, the dollar strengthened 0.13% to 152.02. Sterling strengthened 0.13% to $1.2989.

Japanese voters were set to head to the polls on Sunday for a general election with opinion surveys showing the ruling Liberal Democratic Party (LDP) could lose its dominance that has lasted for more than a decade, possibly complicating monetary policy plans for the Bank of Japan (BOJ).

The BOJ is scheduled to meet next week and is expected to maintain ultra-low interest rates next week, and probably signal a less dovish policy outlook due to receding fears of U.S. recession – and the need to keep speculators from pushing down the yen too much.

Another potential complication for the BOJ was data that showed core inflation in Japan’s capital in October dipped below the central bank’s 2% target for the first time in five months.