Dollar Declines Amidst Uncertain Fed Policy Outlook

(RTTNews) - The U.S. Dollar slipped during the week ended November 7 amidst uncertainty surrounding the Federal Reserve's monetary policy outlook. Sentiment during the past week was dominated by concerns over the longest-ever shutdown of the U.S. government, the absence of key economic data, and a massive tech rout triggered by fears over frothy equity market valuations.

During the past week, the U.S. dollar declined against the euro, the British pound, and the Japanese yen. The Dollar Index which measures the Dollar's strength against a basket of 6 currencies also dropped close to a quarter percent. The greenback however held firm against the Australian Dollar, the Canadian dollar, the Swedish krona as well as the Swiss franc.

The dollar weakened amidst mounting monetary policy uncertainty attributed to the absence of official data from the U.S. government agencies to assess the strength of the economy. Markets also priced in the Fed's dilemma of simultaneously combatting stubborn inflation as well as addressing a softening labor market.

Data released on Monday showed the ISM U.S. Manufacturing PMI falling to 48.7 in October from 49.1 in September, missing market forecasts of 49.5. The reading revealed an eighth consecutive month of contraction in the manufacturing sector. Data released on Wednesday showed the ISM Services PMI rising to 52.4 in October from 50 in September, beating forecasts of 50.8. The strongest expansion in the services sector since February sobered Fed rate cut expectations and boosted the Dollar.

In the aftermath of the PMI readings, the Dollar Index rose to a high of 100.36 by Wednesday, a level last recorded in the month of May. The index however slipped to a weekly low of 99.40 by Friday and eventually closed the week's trading at 99.60, implying a decline of 0.20 percent from the level of 99.80 on October 31.

Amidst the dollar's weakness attributed to an uncertain monetary policy outlook and the absence of economic data, the EUR/USD pair rallied 0.26 percent during the week ended November 7. From the weekly low of 1.1469 touched on Wednesday, the pair climbed to a high of 1.1591 on Friday. The pair eventually closed at 1.1566, versus 1.1536 a week earlier.

The British pound also edged up against the greenback during the week ended November 7 amidst the Bank of England's widely expected pause on interest rates. The GBP/USD pair which had closed at 1.3155 on October 31 gained 0.05 percent during the week ended November 7 to close at 1.3161. The weekly trading range was wider, between a low of 1.3009 recorded on Wednesday and a high of 1.3176 recorded on Friday.

The Australian Dollar dropped 0.79 percent against the U.S. Dollar during the past week, amidst Reserve Bank of Australia's monetary policy pause decision. The pair declined from the level of 0.6546 recorded on October 31 to close the week ended November 7 at 0.6494. During the week, the pair oscillated between a high of 0.6563 recorded on Monday and the low of 0.6458 recorded on Wednesday.

The U.S. Dollar declined against the Japanese Yen during the week ended November 7 amidst expectation that Bank of Japan would continue with its tightening path. The USD/JPY pair closed the week at 153.43 versus 154.01 a week earlier, registering a decline of 0.38 percent. The pair ranged between the high of 154.50 recorded on Tuesday and the low of 152.80 recorded on Thursday and Friday.

Amidst an anticipated end to the U.S. government shutdown, the 6-currency Dollar Index has edged down. It is currently trading at 99.58 versus 99.60 at close on Friday.

The EUR/USD pair is currently flat at 1.1566. The GBP/USD pair has increased to 1.3180 from 1.3161 on Friday. The AUD/USD pair has rallied to 0.6531 from 0.6494 at close on Friday. The USD/JPY pair has strengthened to 154.14 from the level of 153.43 recorded at the end of the previous week.