US dollar maintans gains ahead of crucial expenditures data

The dollar held steady against the euro and the British pound on Friday, maintaining strong gains as investors awaited US consumer spending data, after growth figures came in better than expected, reducing expectations for further Federal Reserve easing this year.

The euro traded near a three-week low at $1.1669, while the pound stabilized at $1.3347 after hitting its lowest in nearly two months on Thursday. The yen traded at an eight-week low after US President Donald Trump announced a new package of tariffs, including a 100% tax on branded pharmaceuticals, 25% on heavy trucks, and 50% on kitchen cabinets.

Limited reaction in currency markets on expectations of exemptions

Shares of major European pharmaceutical companies steadied after an early drop, as analysts noted that exemptions for firms building factories in the United States could mean the impact will be limited for regional giants such as Roche and Novo Nordisk.

Nick Rees, head of macroeconomic research at Monex Europe, said: “It’s not surprising to see the limited reaction in currencies, as markets have already been through several rounds of such measures and tend to view the announcements as positioning by the White House.” He added that bilateral trade deals several countries signed with the Trump administration were not as destabilizing as initially feared, easing market sensitivity.

The dollar index, which measures the US currency against a basket of major peers, was heading toward its biggest weekly gain in two months, after US data on growth, jobless claims, durable goods, and wholesale inventories all exceeded expectations on Thursday.

Rate-cut bets shrink

Attention now turns to the release of US consumer spending data later on Friday for further clues on whether the economy needs additional Fed stimulus.

According to the CME FedWatch tool, investors are now pricing a 12% chance of no rate change next month, up from 8.1% the previous day. Total easing priced in by year-end has also declined to less than 40 basis points.

On Thursday, the US Commerce Department reported that GDP growth was revised up to 3.8% for April through June, compared with an initial estimate of 3.3%. Economists polled by Reuters had not expected this upward revision. The Personal Consumption Expenditures (PCE) price index — the Fed’s preferred inflation gauge — is expected to show a 0.3% monthly rise in August and a 2.7% annual increase, according to a Reuters survey.

Bansi Madhavani, senior economist at ANZ, said: “At a time when Fed members are concerned about high inflation, we think such a report would be encouraging.” She added that as long as monthly inflation data continue to signal an upward trend, “we expect the Fed to continue gradual easing with 25-basis-point cuts.”

In Japan, where the central bank is pursuing monetary tightening, data showed Tokyo core inflation in September remained above the 2% target, keeping expectations for an imminent rate hike alive.

In cryptocurrency markets, Bitcoin rose 0.4% to $109,639.28, while Ether gained 1.3% to $3,939.60.