In a subdued holiday-impacted trading session, the U.S. dollar took a step back on Thursday, as market participants digested recent economic data and its implications for the Federal Reserve's future interest rate policies. At 03:00 ET (08:00 GMT), the Dollar Index, which gauges the greenback's performance against a basket of six major currencies, retreated by 0.3% to 103.510, hovering just above the 2.5-month low of 103.17 observed earlier in the week.
Dollar's Retreat Amid Thin Trading Volumes
The dollar witnessed a slight boost on Wednesday following the release of weekly jobless claims data, which indicated a more substantial drop in new claims than expected, signaling a robust labor market. Furthermore, the University of Michigan's revised inflation expectations provided a positive note. However, this optimism was countered by data revealing that orders for durable U.S. manufactured goods experienced a more significant decline than anticipated in October. Despite these brief moments of positivity, the dollar's resurgence appears short-lived, given the limited trading activity during the Thanksgiving holiday observed in both Japan and the United States.
Analysts at ING noted, "Part of the rebound in the dollar observed over the past two sessions…may well be related to some profit-taking on risk-on trades and more defensive positioning ahead of Thanksgiving."
November has seen the dollar index decline by approximately 2.5%, setting it on course for its weakest monthly performance in a year. Market sentiment currently anticipates that the Federal Reserve will maintain its interest rates in December before considering rate cuts in the coming year.
Euro Advances Ahead of ECB Minutes; German PMIs Bring Optimism
In Europe, the EUR/USD pair climbed 0.3% to reach 1.0922, ahead of the release of minutes from the European Central Bank's October policy meeting, during which the ECB ended a streak of 10 consecutive rate hikes. Supporting the euro's performance were the business activity data for November in the Eurozone. Although French business activity contracted during the month, Germany, the region's leading economy, showed signs of a slower decline in both manufacturing and services activity. This development raised hopes that a potential recession might be less severe than previously feared.
Interestingly, the recent victory of far-right candidate Geert Wilders in the Dutch elections did not appear to have a significant impact on the euro so far.
GBP/USD Gains Amidst Mixed Economic Signals
The GBP/USD pair saw a 0.2% increase to 1.2521, with the pound making a slight recovery after experiencing a dip on Wednesday following Chancellor Jeremy Hunt's Autumn Statement. While Hunt introduced a series of measures aimed at boosting growth before the upcoming election, his forecast for sluggish economic growth disappointed market participants.
In Asia, USD/JPY traded 0.2% lower at 149.17, as the yen rebounded from its earlier losses against the dollar. Market attention now turns to consumer inflation data for October, due to be released on Friday, which is expected to offer further insights into the Bank of Japan's plans regarding its dovish monetary policy.
The AUD/USD pair gained 0.4% to reach 0.6567 as Reserve Bank Governor Michele Bullock reiterated concerns over persistent inflation, which could potentially prompt additional interest rate hikes by the central bank in the coming months.
USD/CNY Declines; Eyes on Chinese PMI Data
Lastly, USD/CNY fell by 0.2% to 7.1377, with the focus shifting to Chinese Purchasing Managers' Index (PMI) data for November, set to be released next week. This data will provide valuable cues regarding the state of the Chinese economy, following a series of weak readings in October.