News & Analysis

CAD

The loonie fell yesterday for the third consecutive trading day, but movement in USDCAD was fairly limited, making it one of the better performers in the G10 space. The move was supported by all of the main cross-asset drivers, as US yields gained a couple of bps more than Canadian yields, equities fell, and crude oil retraced to the $86 handle. No Canadian headlines hit the wires. With the Federal Reserve decision set for tomorrow, volatility will likely be high. Canadian PMIs for October are also scheduled for release at 14:30 BST / 09:30 ET. We recommend contacting your dedicated dealer to discuss how to position your exposure.

USD

The US dollar started the weak brightly, with an index of USD strength against its major peers showing overall the currency gained 0.75% in trading yesterday. With overall market sentiment expecting a 0.75% interest rate hike from the Federal Reserve at tomorrow’s meeting, markets main focus will be on Chair Jerome Powell’s subsequent press conference, which traders will scrutinise for signs of any change or slowdown in the expected pace of monetary tightening from the Fed. For today, economic data releases include the Institute for Supply Management’s manufacturing sector Purchasing Managers Index, and the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS), which are both seen as key gauges of the manufacturing sector and unemployment levels, respectively.

EUR

Preliminary Eurozone inflation data released yesterday showed the headline rate rising to an annualised 10.7%, above forecasts, and representing yet another fresh high. Energy costs posted a 41.9% rise, with food, alcohol and tobacco up 13.%. Core inflation, which strips out the most volatile elements, also rise sharply to 5%, also representing yet another fresh high. Concurrently, data showed that Eurozone GDP only grew by 0.2% in the third quarter of the year, down from 0.8% in the previous quarter. This picture of rising costs and weakening economic activity puts the European Central Bank firmly between a rock and a hard place, as it battles political criticism of the negative impact that tightening monetary policy has on demand, against its core mandate to get inflation under control. As a result, the euro has begun the weak by continuing to grind lower against most of its peers.

GBP

Sterling drifted lower against the US dollar yesterday, as did most other major currency pairs, with the pound itself remaining largely out of the spotlight. That said, a meeting of Prime Minister Rishi Sunak and his Chancellor Jeremy Hunt all but confirmed tax hikes will be necessitated to shore up UK public finances, with a Treasury readout noting the pair discussed the “eye-watering” gap in current plans and agreeing that “tough decisions” would be needed. The outlook is so gloomy that yesterday even a meteorological report, which forecast a colder-than-usual winter, had traders concerned about the implied increase in energy costs for the UK exacerbating its cost of living crisis. Lastly, a house price report from Nationwide this morning showed a month-on-month house price fall of 0.9%, much lower than the predicted 0.4% fall. This backdrop will test the Bank of England’s resolve that inflation remains its sole target when it meets this week. Current expectations are for a 0.75% hike, but bets are likely to grow that the BoE could undershoot that given the growing signs of underlying weakness in the UK economy.

 

 

Disclaimer
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