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CAD
After sliding through Thursday trading, USDCAD has begun to grind higher this morning. To us this makes sense, given not just US rate expectations, but also the risks posed by Canadian jobs data set to be published later today. Markets expect to see unemployment rise by 0.1pp, to 6.6%, with 27k jobs added in October. We agree with the former and see downside risks to the latter, leaving us looking for a further selloff for the loonie this afternoon.
USD
As we noted in our response to the US elections, we see growing risks that the Fed is now done with policy easing. After last night, the next move from the FOMC might not be a cut, but a hike. There was little in yesterday’s policy decision to disabuse us of this notion either. The FOMC cut rates by 25bps, but the tone from Powell read as distinctly non-committal in our eyes. Admittedly, we still think one more cut is more likely than not. But taking Trump’s policy platform at face value, we are inclined to think that policy tightening will be needed sooner rather than later from the Fed. For now, the dollar is unmoved, having stabilised through the second half of Thursday trading. But given our view on US rates, we see upside risks going forward, and will be keeping a close eye on Fed speakers in the coming days for hints in this direction.
EUR
Running against the grain of recent data releases, preliminary French wage data for Q3, published this morning, undershot expectations. Markets had been looking for 0.5% QoQ growth. The data actually showed wages increasing by just 0.3%. That has put a dent in the euro, which had been treading water through much of Thursday. Even so, we think the longer term path for EURUSD remains to the downside, with developments in the US key for the pair.
GBP
While last night’s Fed meeting is likely to steal the headlines, the BoE also delivered a rate decision yesterday that was no less important as far as sterling is concerned. In short, Bailey and Co strongly hinted that they would ease rates at a pace of one-cut-per-quarter moving forward, in light of the upside inflation pressures stemming from the recent budget announcements. This helped to propel GBPUSD back toward the 1.30 level through the afternoon, as markets digested the news. But, more to the point, while we think that dollar strength will ultimately see the pair slide over the medium term, this still leaves sterling well positioned to outperform on crosses, in line with our long standing call.