News & Analysis


On Friday, an underwhelming monthly GDP growth figure kept the Canadian dollar on the back foot, having now lost over 1% against the US dollar over the past two trading sessions. Despite the economy remaining in positive territory with a better-than-expected 0.1% positive growth number, the underlying data indicated an economy that is only crawling at the moment. In the context of surprisingly dovish central bank policy makers, with the Bank of Canada indicating last week that at a base rate of 3.75% it is now near the peak of its tightening campaign, markets have now firmly backed away from the bullishness on CAD that saw it gain over 3% against USD since the middle of October. This week, the first point of note on the economic data calendar is BoC Governor Tiff Macklem’s testimony to a government economic committee tomorrow.


Trading on the dollar is largely being driven by speculation over this weeks Federal Reserve announcement on monetary policy. Speculation had been growing over recent trading sessions that the Fed would signal a slowdown in its aggressive rate hiking cycle, and as a result, the dollar had been gradually weakening. These bets appear to have cooled based on overnight trading, with the greenback broadly stronger after trading in Asia. This speculation, that the Fed would ‘pivot’ towards a softer attitude to curbing inflation, dampened not least by US consumer spending data on Friday, which rose more than expected in September, with consumer spending up 0.6% month on month. Despite several further data points set to be released ahead of the Fed meeting on Wednesday, we expect the dollar to remain firm heading in to Wednesdays meeting.


The euro opens the morning trading lower against its main pairing, the US dollar, as investors continued to digest last week’s interest rate decision from the European Central Bank. Having hiked rates by 75 basis points, to have the deposit rate for the eurozone now sitting at 1.5%, the markets initial reaction had been positive, boosting the euro above parity on the midmarket. Indeed, the rise in interest rates from the ECB have represented the fastest pace of hikes on record for the central bank. Nonetheless, with headline inflation sat at 9.9%, and the key German, Italian, French and Spanish economies all forecast to contract next year, the economic outlook remains grim. Indeed, it did not take long for political dissent to emerge, with France President Emmanuel Macron stating the central bank is “smashing demand” to tackle inflation, which only sits at 5.6% in his country, and Italian Prime Minister Giorgia Meloni calling the hikes “rash”. Today, the data calendar sees the release of preliminary quarterly GDP figures from Italy, which are expected to show a 0.1% contraction after a 1.1% gain last quarter, and monthly inflation figures for the eurozone as a whole, which are expected to remain at 9.9%.


A quiet start to the new week for sterling, with the pound now simply consolidating its recent recovery against its major peers. Specifically against the US dollar, the currency now sits almost 12% higher than the flash midmarket lows posted in the aftermath of the previous UK administrations now-infamous ‘mini-budget’ in September. With no economic data due today, market interest will be focused on Thursday’s Bank of England monetary policy meeting, where the central bank will release updated economic forecasts, and its latest interest rate guidance. The UK has experienced severe economic turmoil over the past six weeks, triggered by government policy, but the UK’s new administration, led by Rishi Sunak, has indicated that it will not release its new economic strategy till November 17th. This means that the central bank is to some extent working in the dark at the moment, meaning that its announcements on Thursday are likely to be highly caveated, and therefore volatility in sterling will likely pick up with gusto in the second half of this week.



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