The US dollar strengthened on Thursday, extending its gains from the previous day as investors focused on employment data and inflation data to determine whether the latest signals could influence the rise in US dollar rates or not.
The Euro pared a sharp decline by 0.41% to trade at 0.9843 after European Central Bank minutes from last month's meeting showed policymakers worried that inflation could be stuck at very high levels. At the same time there is an expectation that Germany will face an economic recession next year.
Sterling lost 0.65% to trade at 1.1253 against the US dollar. However, the US dollar is stable against the Japanese yen and the Swiss franc.
Currency markets have struggled to find a clear direction this week, following a dramatic third quarter. The dollar initially weakened against most major currencies, before recovering.
According to Stephen Gallo, head of European FX strategist at BMO capital markets, the sentiment was very gloomy at the end of Q3. The opening of the fourth quarter was surprised by the intervention of the Bank of England in the British government bond market.
He is fundamentally of the view that for now there is no fundamental reason to aggressively buy sterling, euro or yen but the dilemma is that the US dollar is too expensive.
The US dollar index, which measures the US dollar against six major currencies, traded up 0.48% to trade at 111.545.
The main factor driving currency markets at the moment is changing expectations about how aggressive central banks will be, especially from the Fed. The key question is whether they will shift from aggressively raising rates to considering slower economic growth, leading to more cautious rate hikes.
Tomorrow's US jobs data and next week's inflation figures will be the most anticipated data. Investors will get important indications to organize strategies.
