The US Dollar has softened in Friday's US trading session, experiencing a modest pullback after a week of significant gains against major G20 currencies. This easing is primarily attributed to profit-taking activities and the impact of positive developments from China. The Chinese government's unveiling of additional economic stimulus measures, including a cut in deposit rates and detailed plans to bolster domestic demand, has injected optimism into the markets, leading to a recalibration of currency valuations.

China's proactive steps to invigorate its economy are noteworthy. The reduction in deposit rates and the announcement of stimulus packages signal the government's commitment to sustaining growth amid global economic uncertainties. These measures have not only buoyed Chinese equities—resulting in outperformance in Asian markets—but have also had a ripple effect on global markets by enhancing risk appetite. Consequently, currencies like the USD, which typically benefit from risk-off sentiments, have seen a slight retracement.

The US economic calendar is relatively light, with only Building Permits and Housing Starts data scheduled for release. These indicators, while important for gauging the health of the housing sector, are unlikely to be major market movers today. Instead, market participants are keenly awaiting speeches from three Federal Reserve members. Their comments will be scrutinized for insights into the Fed's monetary policy trajectory, especially in light of the upcoming November meeting.

Current market expectations, as reflected by interest rate derivatives, indicate a 90% probability of a 25 basis point rate cut at the November 7 meeting, with the remaining 10% anticipating that rates will remain unchanged. Notably, the possibility of a more aggressive 50 basis point cut has been fully discounted. This consensus suggests that the market is pricing in a gradual easing of monetary policy rather than abrupt shifts.

The US Dollar Index has paused its upward trajectory due to the improved sentiment stemming from China's economic initiatives. However, this appears to be a temporary consolidation rather than a trend reversal. The widening interest rate differentials between the US and other major economies, particularly the Eurozone, continue to underpin the USD's strength. As the Federal Reserve maintains higher interest rates relative to its counterparts, the Greenback is likely to remain supported in the medium term, potentially through the US elections in November:

European equities are grappling with the implications of ECB President Christine Lagarde's recent remarks. Lagarde acknowledged the sluggishness of the European economy, which has led to increased speculation about the ECB's future policy actions. The prospect of prolonged accommodative monetary policy in the Eurozone could further widen the interest rate gap with the US, adding support to the USD against the Euro.

The British Pound is outperforming its major peers today, bolstered by stronger-than-expected Retail Sales data for September. Retail Sales increased by 0.3% month-over-month, defying economists' expectations of a 0.3% decline. On an annual basis, the figure surged to 3.9%, significantly higher than the anticipated 3.2% and the previous month's upwardly revised 2.3%. The Office for National Statistics (ONS) attributed the growth to higher receipts at non-food stores and department stores:

This robust consumer spending data suggests resilience in the UK economy and may prompt a reassessment of the BoE’s monetary policy outlook. Earlier in the week, softer-than-expected CPI figures, particularly a deceleration in services inflation to 4.9%—the lowest since May 2022—had led markets to price in potential rate cuts by the BoE in the remaining meetings of the year. However, the strong Retail Sales data could temper these expectations, as sustained consumer demand may keep inflationary pressures elevated.