US dollar falls as risk appetite rises after China; but set for 3rd weekly gain

The U.S. dollar fell on Friday, taking a breather after five straight days of gains, as risk appetite increased following yet another round of stimulus measures from China that bolstered global equities led by Chinese stocks.

The greenback, however, was on track for its third weekly gain, currently up 0.6% this week. The dollar index, measuring the U.S. unit’s value against six major currencies, has risen about 2.8% so far this month, its largest monthly gain since April 2022.

It was last down 0.3% at 103.52 <=USD>, its largest daily fall since late September.

The biggest support for the dollar over the last few weeks has been a shift in Federal Reserve policy expectations to a more moderate easing phase, after a slew of generally solid U.S. economic data. The Fed slashed benchmark rates by a supersized 50 basis points in September, prompting the rate futures market at that time to price in another jumbo move this year.

That Fed narrative, however, was not in focus on Friday.

Investors were cheered overall by the Chinese government’s launch of two funding schemes to help boost its stock market. Chinese equities rallied as a result, lifting other stock markets as well, including the S&P 500 and the Nasdaq. That elevated the Chinese yuan against the greenback and boosted commodity currencies such as the Australian and Canadian dollars. “Today’s pullback in the dollar was more China-driven. Last night, China launched measures to support the stock market,” said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto. “That boosted Chinese stocks and risk sentiment more broadly and put pressure on dollar/yuan, which in turn helped lift euro/dollar. That kind of started the dollar pullback.”

A slew of economic data from China, including third-quarter growth figures, however, met with a muted response from markets.

In late morning trading, the dollar slid 0.4% against the yen to 149.64 It has advanced about 0.8% on the week, however, having broken above this level on Thursday for the first time since early August. The U.S. currency also climbed 4.2% in October, its best monthly showing since April.

Adding to the dollar’s shine in general was the rising prospect of former President Trump winning the November election, since his proposed tariff and tax policies are seen as likely to keep U.S. interest rates high.

The dollar fell further versus the Japanese currency after data showed U.S. housing starts dropped 0.5% to a 1.354 million pace in September, after rising by a hefty 7.8% to 1.361 million.

The euro, meanwhile, rose 0.2% against the dollar to $1.0861 , rising for the first time in eight days, and on track for its largest daily gain since Sept. 26.

It benefited from the Chinese stimulus news after the European Central Bank cut euro zone interest rates by a quarter point on Thursday, in line with expectations. The ECB move was a nod to the deterioration in economic growth across the region.

Europe‘s common currency was headed for its largest three-week decline against the dollar since 2022, down around 3%, as traders are now pricing in back-to-back rate cuts at the ECB’s upcoming meetings.

Meanwhile, markets have been disappointed at the lack of further details offered by Chinese authorities on plans to revive the economy, and the yuan is headed for its largest weekly fall in more than 13 months against the dollar.

The offshore yuan rose against the dollar, which fell 0.3% to 7.1177 yuan. The Australian dollar , often used as a liquid proxy for the yuan, was up 0.1% at US$0.6705.

The pound was one of the stronger performers against the dollar, rising 0.2% to $1.3036 after UK data showed retail sales grew more than expected in September, offering investors some reassurance about the strength of the British economy.

In cryptocurrencies, bitcoin got a lift from Trump’s rising prospects since his administration is seen as taking a softer line on cryptocurrency regulation. It was last up 2.2% at $68,419, and has been up more than 10% since Oct. 10.

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