SINGAPORE, Oct 27 ― The dollar was headed for a weekly gain today, aided by solid US growth figures that bolstered the case for higher-for-longer interest rates, while the yen hovered on the weaker side of 150 per dollar ahead of a key policy meeting next week.

The US economy grew at its fastest pace in nearly two years in the third quarter, data yesterday showed, as higher wages from a tight labor market helped to power consumer spending.

That added to bets the Federal Reserve is likely to keep monetary conditions restrictive for longer, driving the dollar broadly higher against a basket of currencies.

The US dollar index steadied at 106.52, having hit a three-week high of 106.89 in the previous session, and was on track for a weekly gain of about 0.35 per cent.

"Certainly, the US economy is a lot more resilient than most expected. It's both a blessing and a curse for the Fed,” said Christel Rendu de Lint, head of investments at Vontobel.

"But certainly, the chances of a soft landing look greater than most anticipated.”

Sterling edged 0.09 per cent higher to US$1.2139 (RM5.79), though was not too far from a three-week low of US$1.2070 hit yesterday.

The euro gained 0.07 per cent to US$1.0567 but was eyeing a weekly loss of 0.25 per cent.

The European Central Bank (ECB) yesterday left interest rates unchanged as expected, ending an unprecedented streak of 10 consecutive rate hikes.

"With a rapidly deteriorating macroeconomic landscape, as shown by October PMIs, in our view the ECB will have to tread very carefully going into 2024 and will have no choice but to lower interest rates,” said Julien Lafargue, chief market strategist at Barclays Private Bank.

Data earlier this week showed euro zone business activity took a surprise turn for the worse this month.

Risk sentiment stayed largely subdued in Asia, extending the cautious tone from Wall Street that sent stocks tumbling and kept US Treasuries bid.

"The retreat in yields was to do with a little bit of flight to quality, because what you saw last night was pretty devastating action in the equity market,” said Tony Sycamore, market analyst at IG.

Treasury yields move inversely to bond prices.

"The last few Fridays ... we've seen very much flight-to-safety type moves (because) ahead of the weekend, we're not really sure what's going to be playing out in terms of Gaza,” said Sycamore.

The Australian dollar, often used as a proxy for risk appetite, gained 0.32 per cent to US$0.6342, having slid to a one-year low of US$0.6271 yesterday.

The kiwi similarly languished near a roughly 11-month low and was last 0.05 per cent higher at US$0.5822.

Eyes on BoJ

In Asia, the yen remained top of investors' minds as it stayed on the weaker side of 150 per dollar, a threshold which some see as a potential trigger for intervention by Japanese authorities.

The yen gained more than 0.1 per cent to 150.20 per dollar, though still struggled near the previous session's one-year trough of 150.78.

Japan will continue to respond to the currency market "with a strong sense of urgency,” Finance Minister Shunichi Suzuki told reporters today.

Separately, data released the same day showed core consumer inflation in Tokyo unexpectedly accelerated in October, keeping pressure on the Bank of Japan (BoJ) to phase out its ultra-loose monetary policy settings.

The BoJ is due to meet next week, amid mounting speculation that the central bank could change its bond yield control, with a hike to an existing yield cap set just three months ago being discussed as a possibility.

"If we come in with dollar/yen up at 151 next Monday, then there's more chance I think they'd lift the cap,” said IG's Sycamore.

"The higher the dollar/yen goes in the interim, the more chance there is of a tweak.” ― Reuters