US Dollar Firm Amid Inflation Data and Trade Concerns

The US dollar remained strong on Friday, holding onto modest weekly gains against key rivals. Investors are preparing for upcoming inflation data, which is not expected to influence the Federal Reserve’s decision to lower interest rates next week.

Concerns regarding the trade war are resurfacing, especially after President Trump announced a halt to all trade talks with Canada. This decision was influenced by what he described as a misleading advertisement from Ontario that included disparaging remarks about tariffs from former President Reagan.

The Canadian dollar dipped slightly to $1.4008 against the US dollar, though the overall market response was muted. Many traders are awaiting the crucial meeting between President Trump and Chinese President Xi Jinping next week.

Hopes for Progress with Trump-Xi Meeting

Some in South Korea are optimistic that this meeting could help ease the ongoing trade tensions between the two largest economies in the world.

Ben Bennett, who leads Asia investment strategy at L&G Asset Management, mentioned, “Expectations for the Trump-Xi meeting are quite high. There’s a potential upside for significant de-escalation in tensions post-meeting.” He added that investors are becoming accustomed to a cycle of aggressive statements followed by compromises.

Attention Turns to US Inflation Data

Even as the government shutdown continues, market focus shifts to the September Consumer Price Index (CPI) set to be released later on Friday. Economists surveyed by Reuters anticipate a 0.4% increase in the index and a 0.3% rise in the core index.

While these statistics are unlikely to halt the Fed’s plans to cut rates by 25 basis points next week, they might provide insights on future actions during the December meeting. Traders are nearly fully pricing in a rate reduction now and another one in December.

Dominic Banning, who oversees G10 currency strategy at Nomura, stated, “Given the lack of recent official data, this release will likely carry more weight than usual.”

The euro remained steady at $1.1614, which could represent a 0.3% drop for the week overall. Meanwhile, the euro zone saw unexpected growth in business activity for October, particularly in services, according to recent surveys.

On the other hand, the British pound fell 0.1% to $1.3311, despite stronger-than-expected retail sales driven by demand for gold online.

The dollar index, measuring the currency against six others, is poised for a 0.5% gain this week, having recently increased slightly to 98.99.

New Sanctions and Oil Price Surge

The US imposed new sanctions on major Russian oil suppliers, Rosneft and Lukoil, following additional sanctions from Britain last week linked to Russia’s actions in Ukraine.

These developments have exerted pressure on oil-importing currencies, like the yen, which recently fell to its lowest point in two weeks at 152.85 yen to the dollar. Japan’s core consumer prices were shown to be above the Bank of Japan’s 2% target, maintaining expectations for potential interest rate hikes in the short term.

Prime Minister Sanae Takaichi is reportedly designing a stimulus package that might exceed last year’s $92 billion to assist households against inflation, complicating the Bank of Japan’s potential interest rate decisions next week.

Banning from Nomura added, “There’s a risk that combining accommodative fiscal and monetary policy might weaken the yen over time. It’s hard to argue that the yen’s trajectory is significantly improving at this point.”