Dollar Holds Steady as Traders Await Crucial US Inflation Data

The U.S. dollar remained steady on Friday, positioning itself for a modest weekly gain against major currencies. Traders are awaiting crucial inflation data that is expected to be released later in the day, which is unlikely to change the Federal Reserve’s plan to lower interest rates next week. Concerns surrounding trade relations resurfaced, particularly after President Donald Trump announced the termination of trade talks with Canada, citing a controversial advertisement involving former President Ronald Reagan that criticized tariffs.

As the Canadian dollar edged down to 1.4008 per U.S. dollar, market reactions were relatively muted. Investor attention shifted towards the upcoming meeting between President Trump and Chinese President Xi Jinping, scheduled for next week in South Korea. This meeting has raised hopes for progress in addressing the ongoing trade tensions between the two economic giants.

Focus on US Inflation Data

Investors are keenly watching for the U.S. Consumer Price Index for September, which is set to be released later on Friday. Despite the ongoing government shutdown, economists surveyed by Reuters anticipate a monthly increase of 0.4 percent in the headline figure, with a 0.3 percent rise expected in the core number. Analysts believe this data will not impede the Fed’s plan to cut rates by 25 basis points next week, but it might offer insights into the central bank’s actions in its December meeting.

Traders are largely factoring in a rate cut for next week, as well as another one in December. According to Dominic Bunning, head of G10 FX strategy at Nomura, the upcoming inflation data is particularly significant due to the lack of official statistics recently. He stated, “The market will place slightly more importance on this than they might normally.”

The euro remained flat at $1.1614, poised for a 0.3 percent decline for the week. Recent data indicated that business activity in the Eurozone accelerated more than expected in October, driven by the services sector. Meanwhile, the British pound dipped 0.1 percent to $1.3311, despite better-than-expected retail sales driven by increased demand for gold from online jewelers.

Market Reactions to Sanctions

The dollar index, which gauges the performance of the U.S. currency against six others, was set for a 0.5 percent rise for the week, last reported at 98.99.

New U.S. sanctions targeting major Russian companies Rosneft and Lukoil in response to the ongoing conflict in Ukraine have led to a surge in oil prices. These sanctions followed similar actions taken by the UK, which also impacted currencies associated with oil imports, including the Japanese yen. The yen weakened to a two-week low, trading at 152.85 per U.S. dollar.

Data released earlier on Friday showed Japan’s core consumer prices remained above the central bank’s 2 percent target, sustaining expectations for a potential rate hike. New Prime Minister Sanae Takaichi is reportedly preparing a significant economic stimulus package, potentially exceeding last year’s $92 billion, aimed at easing inflation pressures on households. Sources familiar with the plan informed Reuters that this could complicate the Bank of Japan’s decision regarding interest rates next week, with current estimates suggesting only a 19 percent chance of an increase.

Bunning remarked, “We have a risk of looser fiscal and relatively loose monetary policy coming together, undermining the value of the yen over time.” As the market continues to navigate these dynamics, all eyes remain on the impending inflation report and its implications for both U.S. economic policy and global trade relations.