By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -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.
Investors cheered 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 as well and boosted commodity currencies such as the Australian and Canadian dollars at the expense of the safe-haven greenback.
The dollar index, measuring the U.S. unit's value against six major currencies, however, was on track for its third weekly gain, currently up 0.6% this week. It has risen about 2.7% so far this month, its largest monthly gain since February 2023.
The index was last down 0.3% at 103.49, its largest daily fall since late September.
"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 started the dollar pullback."
Friday's price action for the U.S. dollar, however, was likely temporary, Bregar said.
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 (bps) in September, prompting the rate futures market at that time to price in another jumbo move this year.
"Speculation that the Fed could follow September's 50 bps rate cut with another similarly sized move has been blown away by a round of data pointing to a resilient U.S. economy," wrote Jane Foley, head of FX strategy, at Rabobank in London.
"Instead, talk has emerged that the FOMC might be minded to cut rates only once more before the end of the year."
U.S. rate futures have priced in a 95% chance that the Fed will cut rates by 25 bps next month, and a 5% probability that it will pause, or keep the fed funds rate at the 4.75%-5% target range, according to LSEG estimates. They had previously seen a further 50-bps cut likely at one of these meetings.
The futures market also expect about 45 bps cut for 2024, and an additional 104 bps reductions next year.
RISING TRUMP ODDS
In afternoon trading, the dollar slid 0.5% against the yen to 149.51. It has advanced about 0.8% on the week, however, versus the Japanese currency having broken above the 150 level on Thursday for the first time since early August. The U.S. currency also climbed 4.6% in October, its best monthly showing since February last year.
Adding to the dollar's overall shine 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 in August.
The euro, meanwhile, rose 0.3% against the dollar to $1.0865, rising for the first time in eight days, and on track for its largest daily gain since Sept. 26. It was down 2.7% so far this month, on pace for its biggest monthly decline since May 2023.
It benefited on Friday 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. Traders are now pricing in back-to-back rate cuts at the ECB's upcoming meetings.
In Asia, 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 Chinese unit, was up 0.1% at US$0.6704.
The pound was one of the stronger performers against the dollar, rising 0.2% to $1.3042 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 in the U.S. presidential elections since his administration is seen as taking a softer line on cryptocurrency regulation. It was last up 2.8% at $68,781 , and has been up more than 10% since Oct. 10.
Currency
bid
prices at
18
October
07:33
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 103.49 103.78 -0.27% 2.09% 103.78 103.
index 45
Euro/Doll 1.0864 1.0831 0.31% -1.57% $1.0868 $1.0
ar 826
Dollar/Ye 149.53 150.245 -0.48% 6.01% 150.18 149.
n 445
Euro/Yen 1.0864 162.67 -0.13% 4.39% 162.84 162.
21
Dollar/Sw 0.8653 0.866 -0.06% 2.83% 0.8669 0.86
iss 5
Sterling/ 1.3042 1.3011 0.24% 2.49% $1.307 $1.3
Dollar 012
Dollar/Ca 1.3807 1.3795 0.1% 4.17% 1.3815 1.37
nadian 85
Aussie/Do 0.6702 0.6696 0.1% -1.69% $0.6719 $0.6
llar 695
Euro/Swis 0.9401 0.938 0.22% 1.24% 0.9406 0.93
s 78
Euro/Ster 0.8329 0.8323 0.07% -3.91% 0.8336 0.82
ling 96
NZ 0.6066 0.6061 0.12% -3.97% $0.6079 0.60
Dollar/Do 55
llar
Dollar/No 10.9248 10.912 0.12% 7.79% 10.9394 10.8
rway 594
Euro/Norw 11.8702 11.8234 0.4% 5.76% 11.881 11.7
ay 714
Dollar/Sw 10.5255 10.5372 -0.11% 4.55% 10.5493 10.5
eden 03
Euro/Swed 11.4361 11.4144 0.19% 2.79% 11.4435 11.3
en 86