Due to the majority of economic indicators outperforming expectations, the US dollar has reversed its downtrend this month and embarked on a continuous rally. The Federal Reserve is scheduled to hold an interest rate meeting in early November, and the stronger-than-expected economic indicators have led the market to no longer believe that the Fed will cut interest rates by 50 basis points in one go, which is the main backdrop for the dollar's current rise. In addition, the market is concerned that high tariffs may make it difficult for US inflation to decrease, thereby hindering interest rate cuts, thus providing additional support for the dollar.

US Economic Indicators are Strong

After the Federal Reserve cut interest rates by 50 basis points in mid-September, the dollar only slightly adjusted in the following trading days. By the end of September, the dollar began a sustained rise, which has now lasted for three consecutive weeks, with the increases being 2.02%, 0.45%, and 0.53% respectively. Currently, the US Dollar Index is at 103.46, close to the highest point in the last 11 weeks.

The main reason for the dollar's rise this time is that the newly released US economic indicators are mostly better than expected, which has almost completely eliminated the possibility of the Fed cutting interest rates by 50 basis points in November. In addition, changes in market expectations for the upcoming US presidential election are also favorable to the dollar.

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In terms of economic indicators, on October 4th, the US released September non-farm employment data that was across the board better than expected, which essentially made the market no longer expect the Fed to cut interest rates by 50 basis points again at the November meeting, with the market expecting a cut of only 25 basis points.

The US September CPI released on October 10th was slightly higher than expected, and the US September PPI released on October 11th was roughly in line with expectations. Overall, these two price data slightly weakened the rationale for the Fed to cut interest rates.

The US September retail sales monthly growth rate released this Thursday increased by 0.4%, higher than the expected growth of 0.3%, and also better than the August growth of 0.1%. It is clear that the retail data significantly weakened the rationale for the Fed to cut interest rates.

Although economic indicators have weakened the rationale for the Fed to cut interest rates, they have only eliminated the expectation of a 50 basis point cut in November, but not enough to eliminate the market's expectation of a 25 basis point cut in November.

Before the Fed's next interest rate meeting on November 7th, the only data that could shake the expectation of a rate cut is the US October non-farm employment data to be released on November 1st.

ECB Continues to Cut Interest RatesThis Thursday, as expected, the European Central Bank (ECB) announced a 25 basis point cut in the benchmark refinancing rate to 3.40% at its interest rate meeting, marking the second consecutive rate meeting where a rate cut was announced. Looking at the year, the ECB has cumulatively lowered interest rates three times, occurring in June, September, and this October.

In fact, more than a month ago, the market did not have a particularly strong expectation for an ECB rate cut in October. However, contrary to the United States, recent economic indicators released in the Eurozone have mostly been weaker than expected, leading the market to gradually shift towards expecting an ECB rate cut in October.

For example, the Eurozone's September CPI annual rate increase, announced on October 1st, was 1.8%, below the ECB's 2% inflation target and lower than the expected 1.9% increase. It was also significantly lower than the 2.2% annual increase in August. Although the Eurozone's September PPI, announced on October 3rd, was slightly higher than expected due to oil prices, its significance is far less than that of the CPI, and thus it was not enough to change the market's expectation of an ECB rate cut.

Before the ECB announced the interest rate results this Thursday, the revised September CPI was announced, with the annual rate increase being revised down from 1.8% to 1.7%.

ECB President Christine Lagarde stated at the post-meeting press conference that the downside risks to the ECB's inflation forecasts are "likely" greater than the upside risks.

The market currently expects another rate cut by the ECB in December, and it is highly probable that rate cuts will continue in the first half of next year.

The euro closed at $1.0868 on Friday, depreciating by 0.65% for the week, and marking three consecutive weekly losses, indicating a very clear weakness.