Investing.com – The U.S. dollar retreated from elevated levels on Wednesday, halting its recent rally ahead of the release of key macroeconomic data that could change expectations for future Fed rate cuts.

At 05:30 ET (09:30 GMT), the dollar index, which tracks the dollar against a basket of six other currencies, was trading 0.2% lower at 104.037, hitting its highest level since delayed July on Tuesday.

The dollar is losing due to demand for labor market data

The dollar has been gaining ground lately as recent economic readings point to a resilient economy, causing investors to back down on their views on the pace of the Federal Reserve’s interest rate cuts.

The labor market is particularly in focus, with data released on Tuesday showing it was lower than expected in September, reaching its lowest level since January 2021.

That weighed on the dollar overnight as a slowing labor market could strengthen the case for the Federal Reserve to cut interest rates again in November.

The report is scheduled to be released on Wednesday, ahead of a weekly release on Thursday and then a potentially key monthly report on Friday.

The early release of the third-quarter report will also take place later in the session and is expected to show continued solid growth in the world’s largest economy.

Euro supported by German GDP

In Europe, it rose 0.3% to 1.0850, supported by stronger-than-expected third-quarter economic growth data in Germany.

In Germany, it unexpectedly grew by 0.2% in the third quarter compared to the previous three months, a significant improvement compared to the expected quarter-on-quarter decline of 0.1%.

The German Chamber of Commerce and Industry forecast on Tuesday that the euro zone’s largest economy will shrink by 0.2% this year, cutting its previous stagnation forecast published in May.

The Council has cut interest rates three times this year and is expected to do so again at its next meeting.

fell to 1.3011, ahead of the UK budget later in the session, a first for the novel Labor government.

Finance Minister Rachel Reeves is expected to raise taxes and spending, with some caution seen two years after then-Prime Minister Liz Truss’s tax cut plans sparked a bond market crisis.

Yen is waiting for the BOJ meeting

fell 0.2% to 153.12, with the pair retreating after nearly reaching 154 in overnight trading.

The yen weakened before the end of Thursday’s meeting, at which the central bank is widely expected to leave interest rates unchanged.

Heightened political uncertainty in Japan is expected to overshadow the BOJ’s plans to raise interest rates further after two hikes earlier this year.

fell 0.1% to 7.1241, with this week’s focus on the country’s Purchasing Managers’ Index data, which comes on the heels of several novel stimulus measures from Beijing through October.

The National People’s Congress will also be held in early November to provide further guidance on the government’s plan to boost budget spending.