Dollar retreats after rising sharply, pay attention to Fed officials’ speeches

In Asian trading on Friday, the U.S. dollar index hovered around 99.76. The U.S. dollar remained volatile against a basket of currencies on Wednesday near a five-month high, with strong economic data continuing to support the U.S. dollar. The U.S. dollar index was basically unchanged at 100.16 on the day, maintaining its highest level since late May. The market is paying close attention to the U.S. Supreme Court hearing on the legality of Trump's tariffs, which may reshape the global trade and exchange rate pattern. The pound has taken a breather after recent weakness as the market awaits interest rate decisions from the Bank of England and Norway's central bank.

Analysis of major currency trends

US dollar: As of press time, the US dollar index is hovering around 99.75. The latest US non-farm payrolls (NFP) will be released this Friday. However, the longest government shutdown in US history has restricted the circulation of official data sets. Even though private data releases tend to produce volatile results between releases, investors still default to paying more attention to private data releases. Results from the University of Michigan surveys of consumer confidence and consumer inflation expectations are still due for release on Friday, and they could become more important for investors who miss out on meaningful government-level inflation and labor indicators. Technically, the U.S. Dollar Index is now testing its 200-day moving average, a position that prevented buyers from pushing prices higher in late July. If a break above this level is confirmed, the next target would be the key summer resistance at 101.977. But if the rally loses momentum here, the U.S. Dollar Index could pull back to the 50% retracement of its recent gains at 99.463.

Euro: As of press time, EUR/USD is hovering around 1.1540, indicating risk aversion.Sentiment continues to rise, and the U.S. dollar, as a traditional safe-haven currency, has received strong support. At the same time, the economic data released by the Eurozone were mixed and failed to provide an effective boost to the euro. From the perspective of monetary policy path, the Federal Reserve faces the dual challenges of a weak labor market and rising inflation risks, and the differences in views among policymakers have become increasingly apparent. Powell cited the disagreement as the main reason to proceed cautiously with easing policy, paving the way for a pause in rate cuts in December. Technically, after experiencing a sharp decline from 1.1540 to 1.1472 in the early stage, the EURUSD is currently building a box consolidation pattern within the 1.1470-1.1500 range. 1.1500, as a key psychological barrier and early support-to-resistance level, has significantly suppressed the exchange rate. The exchange rate has tested this level many times and failed to effectively break through, indicating heavy selling pressure from above. The lower edge of the box at 1.1470 forms an important short-term support. If this position falls, it will open up further downside space.

Foreign exchange market news summary

1. Progress of the U.S. Supreme Court tariff case debate: Trump’s probability of winning is reduced

The U.S. Supreme Court held oral arguments on Wednesday on the legality of Trump’s large-scale reciprocal tariffs. In addition to the liberal justices of the Supreme Court, many conservative justices have also questioned the legality of Trump's tariffs. Supreme Court Chief Justice John Roberts said that Trump's tariffs are taxes on Americans, which has always been the core power of Congress. Neil Gorsuch and Amy Coney Barrett, two of the three justices appointed by Trump as president, also raised questioning questions and delved into the arguments of tariff opponents. The Supreme Court has a majority of conservative justices, with a ratio of 6:3. The Supreme Court is likely to announce its decision in December. PrelevelingTaiwan’s Polymarket recently gave Trump a 27% probability of winning the case, down from 40% before the debate, and briefly fell to a new low of 18% during the hearing.

2. The Bank of Canada will lay off 10% of its employees, and the country’s Prime Minister Carney seeks to save expenditures in the autumn budget report

A memo shows that the Bank of Canada plans to lay off 10% of its employees, involving about 225 employees, in response to Prime Minister Carney’s (formerly Governor of the Bank of Canada and Governor of the Bank of England) request to save government spending. The layoffs will take place over the next few months and will be xmtrade.orgpleted by the end of June 2026. This is part of the bank's efforts to achieve its target of reducing budget costs by 10% by the end of 2026. The bank is also xmtrade.orgmitted to achieving 15% budget cuts between 2026-28 and has pledged to cut corporate-level spending by a further 5% by the end of 2028.

3. ADP employment growth was stronger than expected and weak small business employment growth caused concern

ADP reported on Wednesday that employment growth in U.S. private xmtrade.orgpanies in October was slightly stronger than expected. Trade, transportation and utilities added 47,000 jobs, offsetting job losses in many other industries. Although artificial intelligence has fueled a boom in the technology industry, the xmtrade.orgrmation services industry lost 17,000 jobs. Other industries seeing job losses include professional and business services, other services and manufacturing, which continues to struggle despite President Trump's attempts to bring factory jobs back to the United States through tariffs. All new jobs came from xmtrade.orgpanies with at least 250 employees, with 76,000 jobs added in this category, while small businesses lost 34,000 jobs. Nella Richardson, chief economist at ADP, said that small businesses account for three-quarters of the jobs, so the lack of job growth in small businesses is worrying and is one of the reasons for the weak economic recovery. Despite limited job growth, wages are rising. The annual salary of retained employees increased by 4.5% year-on-year, the same as in September; the salary of employees who changed jobs increased by 6.7%, slightly higher than last month.

4. Hammaker: The Fed does not need to raise interest rates to xmtrade.orgbat inflationary pressures

Federal Reserve Hammaker said she does not believe the Fed needs to raise interest rates to xmtrade.orgbat what she considers to be excessive inflationary pressures, but she acknowledged that view may change. Although inflation is high, a rate hike "is not her current base case." The Fed needs to maintain moderately tight monetary policy to keep inflation down amid a weak job market. She laid out factors that could change her view on interest rate policy. She said: "If we see a healthier labor market than what I'm seeing, if the employment data is not indicating a cooling of the economy, but just a change in immigration flows, that may change my view. If inflation continues to remain at these high levels, rather than declining, then that may mean that we need to raise interest rates in this situation."Cleveland Fed President Hammaker said on Thursday that persistently high inflation levels are not conducive to the Fed cutting interest rates again, and she is worried that monetary policy may not be ready to deal with the current inflation. Hammaker said that after last week's policy meeting, I think monetary policy is rarely restrictive, and it is not obvious to me that the reasons for further policy action should be taken at this time. Hammaker said the Fed continues to face inflationary pressures above its target, and current monetary policy settings have little effect on economic growth momentum. She opposed the Fed's decision to cut interest rates last week. Hammaker acknowledged there are problems in the labor market but warned that unemployment remains low.

Institutional Views

1. TD Securities: The pound's performance will be weaker than other G10 currencies before the budget

TD Securities strategists said in a report that as the UK's November 26 budget approaches, the pound's performance is expected to be weaker than other G10 currencies. Strategists note that Britain's fiscal room for maneuver is extremely limited, and the dollar is likely to maintain its recent strength for some time amid the ongoing U.S. government shutdown. The report said: "The pound appears to be structurally undervalued around the 1.30 level, but if it wants to strengthen again, the dollar sentiment needs to reverse after the budget risk event." The catalyst for the weakening of the dollar may be the end of the U.S. government shutdown and the resumption of the release of official economic data, which may release a signal for the Federal Reserve to cut interest rates in December.

2. ING: The pound should continue to remain weak and is unlikely to fall significantly in the short term

ING analysts said that the pound should continue to remain weak, but it is unlikely to fall significantly from current levels in the short term. They pointed out that as the market has recently raised its interest rate cut expectations, the Bank of England's easing cycle has been basically digested by the market, suggesting that the terminal interest rate may be 3.25% next summer. Analysts said: "Unless there is severe fiscal tightening in the budget, further pricing in the Bank of England's interest rate cutting cycle, a credible budget may be enough to slightly reduce the risk premium in British government bonds and sterling." ING expects the euro to remain at around 0.88 against the pound before the budget is released on November 26.

3. JP Morgan analysts: The Bank of England must remain highly cautious in cutting interest rates

Zara Knox, a global market analyst at JPMorgan Chase, said: "Despite some positive news on inflation recently, the fact is that the overall inflation rate in the UK is still 3.8%, almost twice the central bank's target. In terms of growth, the labor market is cooling, but retail sales Other economic data such as and consumer confidence show that the British economy is more resilient. If a large-scale short-term tax increase is announced in the autumn budget, the balance of risks may change next year. However, the Bank of England must remain highly cautious in cutting interest rates before inflation makes more substantial progress."

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