Dollar winds down after volatile week, China NPC in focus

By Rae Wee

SINGAPORE (Reuters) – The dollar took a breather on Friday, on track to cap off a wild week with a slight gain as markets weighed the impact of Donald Trump’s impending return to the White House and what that would mean for the U.S. economy and its rate outlook.

Beijing concludes its five-day meeting of the Standing Committee of the National People’s Congress (NPC) later in the day, which investors will be closely watching for more details of China’s stimulus measures that could in turn lift the yuan and Antipodean currencies.

The dollar further unwound some of its sharp gains from earlier in the week as traders closed out profitable bets on a Trump presidency after his election victory.

That helped lift sterling back toward the $1.30 mark, while the yen similarly got some respite and hovered closer to the 153 per dollar level.

The euro fell 0.07% to $1.0795 and was headed for a 0.35% weekly fall, weighed down by a resurgent dollar and amid a political crisis in Germany, where the already awkward coalition led by Chancellor Olaf Scholz collapsed late on Wednesday.

The Federal Reserve on Thursday cut interest rates by 25 basis points as expected, but flagged a cautious and patient approach to subsequent easing.

“(The) meeting doesn’t change the view that the Fed is still on the path to lower rates and another rate cut in December is likely unless the inflation and labour market data surprises materially to the upside,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management.

“For 2025, however, the picture will be complicated by potential for trade and tax policies to add to the inflation outlook.”

The U.S. central bank’s rate trajectory has been clouded by Trump’s election victory as his plans for hefty tariffs are seen as stoking inflation.

Traders have since reacted to the outcome of the election results by trimming bets on Fed cuts next year.

“If the incoming Trump administration does indeed levy significant tariffs or adopt other inflationary policies, then we believe the Fed funds rate may bottom out next year closer to 4% than to 3%,” said Wells Fargo (NYSE:WFC) chief economist Jay Bryson.

Sterling last traded $1.2983, recovering from its fall to a roughly three-month low earlier in the week.

The pound had rallied 0.8% on Thursday after the Bank of England cut interest rates but said it expected UK inflation and growth to pick up more quickly than it had previously anticipated.

The yen eased 0.14% to 153.15 per dollar.

Against a basket of currencies, the dollar ticked up 0.03% to 104.44, on track to gain just above 0.1% for the week. It had rallied a sharp 1.53% on Wednesday as “Trump trades” picked up strongly.

FURTHER SUPPORT

Friday’s main event revolves around the outcome of China’s NPC Standing Committee meeting, with anticipation of further support from Beijing having cushioned some of the impact from a second Trump presidency on Chinese assets over the past few days.

The President-elect has threatened to impose 60% tariffs on U.S. imports of Chinese goods.

The yuan was last a touch lower at 7.1532 per dollar in the offshore market, while the Australian dollar, often used as a liquid proxy for its Chinese counterpart, dipped 0.13% to $0.6673.

The New Zealand dollar was little changed at $0.6022.

“I think it’s very likely that we will see significantly more fiscal and monetary stimulus from Beijing, which could offset some of the trade headwinds,” said David Chao, global market strategist for Asia Pacific ex-Japan at Invesco.

“All eyes are on what may emerge from China’s policy toolkit after the conclusion of the NPC standing committee meeting.”

Data on Thursday showed China’s exports grew at the fastest pace in over two years in October as factories rushed inventory to major markets in anticipation of further tariffs from the U.S. and the European Union, as the threat of a two-front trade war loomed large.