The US dollar paused its recent gains on Wednesday, softening from elevated levels as markets anticipate key economic data that may influence future decisions on Federal Reserve interest rates.

At 09:30 GMT, the Dollar Index, tracking the dollar against six major currencies, slipped by 0.2% to 104.037, following a peak on Tuesday, marking its highest point since late July.

Dollar Dips Amid Demand for Labour Market Insights

The dollar has been on an upward trend, driven by solid economic data, which has caused traders to reconsider the speed of any future rate cuts by the Federal Reserve.

Labour data is particularly under the microscope, with Tuesday’s report revealing lower-than-expected US job openings in September – the lowest since January 2021. This development weighed on the dollar overnight, as signs of a cooling job market could strengthen the case for another rate cut by the Federal Reserve in November.

Key labour reports are anticipated this week, including the ADP employment report due later on Wednesday, weekly jobless claims on Thursday, and the pivotal monthly payrolls report on Friday. Additionally, a preliminary release of third-quarter GDP is expected later today, likely indicating sustained growth in the world's largest economy.

Euro Gains with German GDP Boost

The Euro (EUR/USD) inched up by 0.3% to 1.0850, bolstered by unexpectedly strong German GDP data for the third quarter.

Germany’s GDP grew by 0.2% quarter-on-quarter, defying the forecasted 0.1% contraction, providing a positive outlook for Europe’s largest economy. However, the German Chamber of Commerce and Industry revised its annual forecast to a 0.2% contraction for 2023, down from its May prediction of stagnation.

The European Central Bank (ECB) has implemented three rate cuts this year and is widely expected to consider another at its upcoming meeting.

The British pound (GBP/USD) edged slightly lower to 1.3011 ahead of the UK’s budget announcement, the first under the new Labour government. Finance Minister Rachel Reeves is expected to increase taxes and spending, stirring some caution two years after the market turbulence triggered by former Prime Minister Liz Truss’s tax-reduction strategy.

Yen Holds Steady as BOJ Meeting Nears

The Japanese yen (USD/JPY) declined by 0.2% to 153.12 after nearly hitting 154 in overnight trading.

Yen weakness occurred ahead of the Bank of Japan’s (BOJ) Thursday meeting, where policymakers are expected to hold interest rates steady. However, political uncertainty in Japan could impact the BOJ’s strategy for potential rate increases, following two hikes earlier this year.

Meanwhile, the Chinese yuan (USD/CNY) dipped by 0.1% to 7.1241. Market attention remains on China’s latest purchasing managers’ index data, which arrives as new stimulus measures from Beijing roll out through October. The upcoming National People’s Congress in early November is expected to provide more insights on fiscal expansion plans.

(Source: Investing.com)