Dollar Gains Amid Dovish ECB and Strong U.S. Data

The U.S. dollar is on track for its third weekly gain, spurred by strong domestic economic data and a dovish European Central Bank (ECB). U.S. consumer spending exceeded expectations, influencing rate forecasts. The ECB cut rates, prompting traders to anticipate further declines in the euro, with a potential future drop to $1.08.

The U.S. dollar is approaching its third consecutive weekly gain, supported by robust American economic reports and a dovish European Central Bank. The latest data on U.S. consumer spending surpassed expectations, altering predictions about the pace of American rate reductions, especially if former President Donald Trump reclaims the presidency.

The ECB's decision to reduce euro zone interest rates by a quarter point reflects the region's slowing growth, impacting the euro's performance. The currency is experiencing its largest three-week decline against the dollar since 2022, driven by expectations of back-to-back rate cuts in future ECB meetings.

In China, economic data met muted market responses, but subsequent announcements from the central bank on stimulus measures provided a lift to Chinese assets. Meanwhile, China's yuan faced its largest weekly decline in over 13 months against the dollar, amid government attempts to revive the economy through measures such as the newly launched Securities, Fund, and Insurance Swap Facility.

(With inputs from agencies.)