Dollar rides 'Trump trade' towards 3rd weekly gain on rate cut expectations

The dollar was headed for its third weekly gain in a row on Friday, helped by a dovish European Central Bank and strong US data that is pushing out expectations for how fast US rates can fall, particularly if Donald Trump wins the presidency.

A slew of economic data from China, including third-quarter growth figures, was met with a muted response from markets, though subsequent comments from the country's central bank providing further details of Beijing's stimulus measures helped lift Chinese assets broadly.

Data Thursday showed US consumer spending beat expectations last month, which added to the belief among investors that US rates may not need to drop as quickly as many thought just a couple of weeks ago.

The European Central Bank cut euro zone interest rates by a quarter point on Thursday, in line with expectations, in a nod to the deterioration in economic growth across the region.

The euro, which is around its lowest since early August, is heading for its largest three-week decline against the dollar since 2022, down around 3 per cent, as traders are now pricing in back-to-back rate cuts at the ECB's upcoming meetings.

Adding to the dollar's shine was the rising prospect of Trump winning the November election, since his proposed tariff and tax policies are seen as likely to keep US interest rates high.

"I think there is potential for further decline in the euro. The ECB has cut rates and didn't give any hints about cutting in December, but given where inflation is, and given that the economic outlook is deteriorating, they are focussing on attempting to shore up the economy a bit more," City Index market strategist Fiona Cincotta said.

"I see potential for a future drop in the euro towards that $1.08 level," she said.

The euro was last up 0.1 per cent on the day at $1.08378, having fallen for 14 out of the last 16 sessions.

Separately, four sources close to the matter told Reuters the ECB was likely to cut again in December unless economic data suggests otherwise.

Meanwhile, markets have been disappointed at the lack of further details offered by Chinese authorities on plans to revive the economy, and the yuan is headed for its largest weekly fall in more than 13 months against the dollar.

The Chinese currency edged up after the People's Bank of China (PBOC) officially launched the Securities, Fund, and Insurance Swap Facility (SFISF) on Friday and as policymakers signalled the potential for further monetary easing ahead alongside other support measures to prop up the economy.

Those came shortly after Friday's data dump that showed China's third-quarter growth numbers were slightly better than expected, but property investment fell more than 10 per cent in the first nine months of the year. Retail sales and industrial production picked up in September.

"The overall tone is actually not bad, given that the nominal GDP itself has also stabilised," Ho Woei Chen, an economist at UOB, said.

"The focus is actually on what the government is going to do next in terms of the size of the fiscal stimulus."

The offshore yuan was last at 7.1166, leaving the dollar down 0.27 per cent on the day. The Australian dollar, often used as a more liquid proxy for the yuan, was up 0.26 per cent at $0.6713.

The dollar traded 0.2 per cent down on the day against the yen at 149.925, having broken above the 150 level this week for the first time since early August.

The pound was one of the stronger performers against the dollar, rising 0.2 per cent to $1.3037 after UK data showed retail sales grew more than expected in September, offering investors some reassurance about the strength of the British economy.

Bitcoin has got a lift from Trump's prospects since his administration is seen as taking a softer line on cryptocurrency regulation. It was last at $67,915, up more than 10 per cent since Oct. 10.

(Additional reporting by Tom Westbrook and Rae Wee in Singapore; Editing by Jamie Freed, Kim Coghill and Andrew Heavens)