Euro and Yen Strengthen as U.S. Dollar Pauses Amid Economic Signals

The euro and yen gained strength against the U.S. dollar following new economic data indicating slower rate cuts by the Federal Reserve. Initial jobless claims figures beat expectations, while positive PMI readings supported economic outlooks. Market anticipates continued cautious rate cuts by both Fed and ECB.

The euro and Japanese yen saw gains against the U.S. dollar on Thursday as the greenback took a brief pause after reaching a nearly three-month high. This comes as economic data pointed toward slower rate cuts from the Federal Reserve. Weekly jobless claims fell sharply below economist estimates, while continuing claims hit a near three-year peak due to distortions from Hurricane Helene.

S&P Global's report indicated an uptick in the U.S. Composite PMI Output Index, signaling expansion in the manufacturing and services sectors. The dollar's recent climb, buoyed by positive economic data, has dampened expectations for aggressive Fed rate cuts, boosting U.S. Treasury yields.

Despite temporary profit-taking, market observers like Joseph Trevisani highlight an ongoing shift in rate expectations. As the euro zone grapples with stalled business activity, the possibility of ECB rate cuts looms, while the Federal Reserve is expected to proceed cautiously, according to CME's FedWatch Tool. This cautious stance is impacting currency valuations and policy outlooks globally.

(With inputs from agencies.)