US Dollar Rebound
The USD has been outperforming the markets this week, bolstered by solid economic data that has boosted demand for the dollar against other major currencies.
Despite the strong data, the USD remains close to its intraday low.
Mixed Signals from PMI Data
The latest flash S&P Global PMI report for October delivered mixed signals. The Services PMI, which measures activity in the services sector, came in at 55.3—a surprising jump, as economists had expected a slight dip from 55.2 in September to 55.0.
This rise indicates a stronger-than-anticipated growth in the U.S. service sector, which could signal increased economic resilience.
In contrast, the Manufacturing PMI contracted for the fourth month in a row, though the pace of decline was slower than expected. The index registered at 47.8, below the 50-point threshold, which separates expansion from contraction.
Decline in Jobless Claims Supports USD
In the labor markets, Initial Jobless Claims rose to 227K, down from the previous week’s 242K, reinforcing the USD’s strength.
Fewer jobless claims typically reflect a healthier labor market, which can support the dollar by raising expectations for continued economic stability.
Election Impact
The USD has also benefited from rising market expectations around the U.S. presidential election. Growing speculation of a potential victory for Republican candidate and former president Donald Trump has fuelled demand, as his policies are anticipated to be inflationary, such as tariffs that could impact trade and prices.
Meanwhile, ongoing uncertainty surrounding the election has bolstered the dollar’s role as a safe-haven asset. Traders and investors often turn to the USD during periods of political or economic uncertainty, further supporting its value.
Japan and Eurozone Developments
In Japan, markets doubt whether the Bank of Japan (BoJ) will hike interest rates again after slightly dovish guidance from Governor Kazuo Ueda.
Ueda indicated that the BoJ needed more time to gain confidence on inflation going down below 2%.
In Europe, stronger-than-expected German PMI data provided a temporary boost to the euro, pausing its recent decline against the USD.
Markets are watching to see if this could lead to a corrective bounce for EUR/USD following its downward trend since late September.
However, the gains are unlikely to alter the European Central Bank’s dovish stance, as active rate cuts are still anticipated in the near term.
Technical Analysis
The DXY pulled back on Thursday after forming new highs and breaching resistance. The DXY has broken above 104.00 and is in an empty area that could quickly see 105.00 emerge as the first cap on the upside. In case prices turn bearish, support around 103.4 could come into effect. If buyers fail to take control and price breaks below 104, then we might see a shift in the trend. Price also formed a double top with the August 2 high, a potentially bearish indicator.