News & Analysis

CAD

In confirmation that our longstanding concerns around Canadian growth are seemingly shared by policymakers, yesterday saw PM Trudeau announce a C$6.3bn fiscal package aimed at supporting consumer demand ahead of the Christmas period. Given the stimulative impact of the announced measures, and their likely consequences for inflation and rates, loonie unsurprisingly failed to participate in the broader G10 FX selloff versus the dollar on Thursday. Indeed, considering this intervention, we are downgrading our call for the BoC’s December meeting, and now only expect to see a 25bp rate cut from the Governing Council. That said, while this development is likely to dictate loonie fortunes short term, we also think that the longer-term implications of yesterday’s announcement are instructive. Temporary stimulus measures imply pain deferred, rather than avoided, both for the economy, and the currency.

USD

The dollar took another leg higher on Thursday afternoon, a move that sent the DXY index north of 107 on a sustained basis for the first time since late 2023. Underpinning this move appears to have been confirmation from US officials that Ukraine was indeed targeted by an intermediate range ballistic missile launched by Russia, combined with speculation around Trump’s likely nominee for Treasury Secretary, and an initial jobless claims reading that was marginally better than expected. It is the second of these that is likely to continue as a focus for FX markets ahead of the weekend, with rumours overnight suggesting that Trump intends to appoint Kevin Warsh to the post for the time being, before replacing Fed Chair Powell with him in 2026. Confirmation of this would see significant focus on Warsh’s monetary policy views in the coming days, but based on the initial market reaction, traders seem inclined to view this as dollar positive for now.

EUR

EURUSD broke below 1.05 yesterday – a level that had been closely watched as a key resistance for the pair, while this morning flash PMI readings for France and Germany have disappointed relative to expectations ahead of the aggregate eurozone reading, due to be published at 09:00 GMT, maintaining downside pressure on the euro. With a limited data calendar for later in the day and no headlines of note from Lagarde, who is also speaking this morning, we are inclined to think that the euro is likely to end the week trading on the back foot, all else being equal.

GBP

While the dollar remained in the driving seat versus sterling on Thursday, the pound still managed to post gains against the euro ahead of this morning’s data dump. To that point, October’s retail sales data published at 07:00 GMT has seen the pound give up all those gains, and then some, notching lower through early trading. That said, we had warned yesterday morning that there were downside risks to this morning’s print. Specifically, we saw significant odds that pre-budget jitters would weigh on consumer sentiment. Indeed, this appears to be the case, with core retail sales slipping by -0.9% in October – markets had expected to see a much smaller -0.4% fall. PMIs later today could well see this downside pressure on sterling continue too, for the same reasons, meaning that sterling is likely to continue trading with a softening bias heading into the weekend.

 

 

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