Dollar Pulls Back After Nine-Day Rally
The dollar index dipped on Friday, ending its nine-day winning streak, as profit-taking and declining short-term Treasury yields followed a series of soft U.S. economic data releases. U.S. producer prices were flat in September on a monthly basis, signaling subdued inflationary pressures. Additionally, the University of Michigan’s consumer sentiment index for October fell unexpectedly, raising concerns about declining consumer confidence.

Strong Bank Earnings Boost Market Optimism
Despite mixed economic data, U.S. bank shares surged, with JPMorgan Chase and Wells Fargo reporting better-than-expected third-quarter earnings. This fueled optimism in equity markets and provided a boost to the S&P 500, which gained 0.64% to reach a new record high.

Mixed Signals from Canada and UK Growth
Canada’s labor market delivered a surprise, adding 46,700 jobs in September, with the unemployment rate falling unexpectedly. However, a Bank of Canada survey revealed that firms continue to struggle with weak demand and slow sales, though slight improvements were observed in the third quarter. Meanwhile, the UK economy grew by only 0.2% in August, falling short of expectations, reflecting sluggish momentum following two months of stagnation.

Bond Market Sees Steepening Yield Curve
In the bond market, 2-year Treasury yields fell by 6 basis points, contributing to a steepening of the yield curve. The 2s-10s spread widened to +13.6 basis points, signaling shifting market expectations about future interest rates amid mixed economic data.

Commodities: Gold and Copper Rise, Oil Slips
Oil prices edged down 0.49%, though the commodity remained on track for a second consecutive weekly gain, supported by supply concerns. Gold prices rose by 1.08%, driven by expectations of a potential Fed rate cut as weak U.S. data fueled speculation of policy easing. Copper climbed 1.44%, buoyed by optimism that China will announce new stimulus measures over the weekend, potentially bolstering global demand.

Currency Markets: Dollar Weakens, Risk Assets Recover
The dollar’s retreat allowed other major currencies to recover modestly. EUR/USD edged up by 0.06%, though gains were capped by uncertainties within the eurozone. The yen weakened slightly, with USD/JPY rising 0.32% as mixed economic sentiment and risk-on movements in equities reduced safe-haven demand. The British pound rose 0.10% against the dollar despite underwhelming UK GDP figures.

The Australian dollar gained 0.27%, supported by hopes for Chinese stimulus. Yen-based pairs like EUR/JPY and GBP/JPY saw gains of 0.42% and 0.46%, respectively, as market participants favored riskier assets amid reduced haven demand. AUD/JPY rose 0.62%, reflecting optimism around China’s potential fiscal measures.

Outlook: Economic Data and Central Bank Policy in Focus
The currency outlook will depend on the interplay between economic data and central bank decisions. The U.S. dollar may face further pressure if inflation and consumer sentiment continue to weaken, reinforcing expectations for Fed rate cuts. Conversely, stronger-than-expected data could renew support for the dollar by dampening rate cut speculation.

The euro’s movements will hinge on developments within the eurozone and ECB policy signals. The British pound may remain volatile as investors digest the impact of sluggish UK growth. In Canada, stronger labor data could provide stability for the loonie, though expectations of Bank of Canada rate cuts may pose a challenge. The Australian dollar will be sensitive to China’s upcoming fiscal announcements, with significant stimulus measures likely to offer support.

Global economic data, central bank actions, and geopolitical developments will remain key drivers of volatility, keeping markets responsive in the near term.