(Bloomberg) -- Traders has pushed the dollar into its second-straight weekly gain in anticipation of a slower pace of interest-rate cuts by the Federal Reserve.
The Bloomberg Dollar Spot Index has climbed 0.4% this week, extending its gains so far in October to 1.6% as resilient US economic data boosted expectations for a more cautious Fed — even as some other central banks consider additional monetary easing to aid their local economies.
Money markets reflect traders’ expectations US officials will lower borrowing costs by no more than a quarter-point in November.
“The US dollar’s strength is likely due to the market’s discussion shifting to ‘pause or not’ from ‘the size of the cut’ in November,” said Yusuke Miyairi, a currency strategist at Nomura International Plc.
While momentum in the dollar stalled at the end of the week, the Bloomberg gauge remains near its highest since mid-August. A group of speculative market players that includes hedge funds, asset managers and others trimmed their bets on a weaker dollar to about $9.4 billion as of Oct. 8, from $13.6 billion the week prior, according to Commodity Futures Trading Commission data.
Support for the greenback has come as recent data showed US labor market resilience in September and measured progress on inflation, leading traders to scale back bets for aggressive rate cuts at the remaining two 2024 Fed policy meetings.
Geopolitical risks from the conflict in the Middle East have also driven demand for the greenback and other safe-haven currencies such as the Swiss franc.
The path from here is less certain. With the upcoming US election just weeks away, the premium paid to hedge against the US currency gaining over the next month against a basket of peers has risen to near the highest level since July.
JPMorgan Chase & Co. strategists including Patrick Locke wrote in a note this week that the dollar, which has yet to show material risk premium related to the US elections, is “too complacent” given polling metrics and tariff policy risk.
--With assistance from Carter Johnson.
(Updates positioning data in fifth paragraph.)
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