News & Analysis


The Canadian dollar buffered pressure from the broad US dollar on Friday, despite the downturn in US equities, as the Canadian labour force data for September didn’t disprove Governor Macklem’s hawkish preferences that were relayed to markets just the day prior. This week, the data calendar is sparse in Canada, meaning most of the focus will be on the tone of risk within the cross-asset space and US rate expectations following Wednesday’s inflation report.


Friday’s payrolls data put last week’s Fed debate to rest as it showed the unemployment rate dropping to the pre-pandemic record low, labour force participation failing to come back online, and resilient labour demand. In response to the release, the dollar DXY index ramped up by another 0.5% to trade just shy of the 113 handle, while equities played catch-up after a resilient week. The S&P 500 fell by 2.8%, while the tech-heavy and rates sensitive NASDAQ index exhibited larger losses in the region of 3.8%. This week, the debate over the peak in the Fed’s hawkishness is set to rear its head again ahead of Wednesday’s CPI report for September. However, given that core CPI is now largely driven by services inflation, of which the main components are highly persistent, we think it remains too soon to see the inflation data force a more dovish narrative in the US rates space. Prior to Wednesday’s release, markets can expect the NFIB small business optimism measure for September today at 11:00 BST. But in the short-term, the focus won’t be on the US economic data calendar, but instead geopolitical developments and the level of the haven bid in government bonds once Treasuries start to trade again after being closed in Asian trading today. In terms of geopolitical developments, the war has escalated again over the weekend, with momentum largely swinging in favour of the Ukrainian forces after news reports of an attack on a key Russian transport bridge to Crimea. However, this morning, traders awake to news of a counterstrike in the Ukrainian capital. With Putin’s warnings of nuclear escalation still fresh in the minds of traders, focus will rest heavily on the headlines resulting from Russia’s Security Council meeting this afternoon.


Despite trading close to parity in the early parts of last week, increased pressure from the US rate space in the second half of the week resulted in EURUSD reversing all gains to end the week 0.66% lower. This week, focus will rest heavily on developments in Ukraine as geopolitical risk premia starts to rise again in European assets. Prior to Russia’s Security Council meeting this afternoon, focus will sit on more domestic developments, however. The eurozone Sentix measure of investor confidence for October is due out at 09:30 BST, while ECB member Klaas Knot is set to speak at 09:00 BST before the more pivotal speech by ECB Chief Economist Philip Lane at 14:00 BST.


Sterling continued its descent on Friday as it slumped 0.62% on the day following a robust payrolls report and a further increase in US yields. Over the weekend, the national papers largely focused on the political backlash within the Conservative party, with reports suggesting that PM Truss will speak with the 1922 Committee of Conservative backbenchers on Wednesday to try and realign the party behind her as Parliament returns from recess tomorrow. This morning, the pound sits comfortably within the range of the broader G10 board as news flow largely concentrates around the Bank of England’s latest measures. The central bank, wary that its emergency programme to assist pension funds liquidating longer-term gilt holdings is set to expire at the end of the week, has stepped up the auction size from £5bn to £10bn today while also opening a new programme called the Temporary Expanded Collateral Repo Facility that runs until November 7th, a few days after the Bank’s next meeting scheduled for November 3rd.



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