The U.S. dollar gained modestly on Monday, bouncing back from last week’s decline as traders braced for a closely watched inflation reading and kept a wary eye on signs of strain in the U.S. regional banking sector.
At 04:15 ET, the Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.1% to 98.270, recovering slightly after logging its sharpest five-day drop since late July.
Dollar firms before CPI release
The dollar found support from a rebound in equities, even as renewed concerns over U.S. regional lenders rippled through markets. Two banks — Zions Bancorporation (NASDAQ:ZION) and Western Alliance Bancorporation (NYSE:WAL) — disclosed loan issues tied to fraud, stoking fears of broader credit stress.
“Concerns about the health of regional banks and the broader quality of credit in the U.S. remain very central for FX markets,” analysts at ING said in a note.
“Indications that lending issues don’t extend beyond Zions Bancorp and Western Alliance could offer some further relief to the dollar, but it might not be enough to fully price out concerns about the underlying health of the credit market and have the greenback reclaim all losses.”
Investors are now awaiting Friday’s release of the delayed September consumer price index, which is expected to go ahead despite the government shutdown.
“We are aligned with consensus in expecting a 0.3% MoM core read – which should further endorse a 25bp cut by the Fed next week,” ING said. “Barring major deviations from consensus, the inflation release should not have major FX implications, with jobs markets playing a more important role for rate expectations.”
Euro stabilizes as French risk subsides
EUR/USD edged up 0.1% to 1.1659, with the euro recovering some ground as political calm returned to France. Prime Minister Sébastien Lecornu survived two no-confidence votes last week after agreeing to postpone a controversial pension reform plan.
“The calm on the French political side allowed the euro to recover a bit, but it’s hard to get too comfortable with France. S&P downgraded the country from AA- to A+ in an unscheduled move on Friday,” ING noted.
Meanwhile, data showed German producer prices slipped 0.1% in September compared with the previous month and fell 1.7% year-on-year, highlighting weak inflationary pressures in Europe’s largest economy.
Sterling dips slightly before budget
GBP/USD slipped 0.1% to 1.3421 as investors await more details on the U.K.’s November budget.
“Expect a steady flow of information about the content of the November budget in the coming weeks. That appears like a double-edged sword for sterling. Any concerns about fiscal sustainability will hit back-end gilts and spill over into the pound, while higher taxation should dampen growth and raise chances of earlier BoE easing,” ING said.
Yen weakens on Takaichi speculation
USD/JPY rose 0.1% to 150.81, as the yen came under mild pressure on growing expectations that Sanae Takaichi, leader of the Liberal Democratic Party, will become Japan’s next prime minister.
Takaichi is considered fiscally dovish, signaling more government spending and looser financial conditions in the coming months. She is also expected to oppose additional rate hikes by the Bank of Japan, which meets next week.
Yuan edges lower after GDP data
USD/CNY slipped slightly to 7.1242 after data showed China’s economy grew marginally faster than expected in the third quarter.
GDP expanded 4.8% year-on-year, above forecasts of 4.7% but down from 5.2% in Q2 — its weakest pace since Q3 2024.
Still, growth so far this year remains above Beijing’s 5% target, helped by resilient exports, even as weak consumer spending and soft private investment continue to weigh on momentum.
Aussie dollar inches higher
AUD/USD ticked up 0.1% to 0.6501, with the risk-sensitive currency benefiting from improved sentiment across Asian markets.
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