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CAD
The Canadian dollar continued its climb against the dollar yesterday to reach new highs not seen since July as crude oil prices ticked up higher and risk sentiment remained supportive, while this morning, the loonie climbed up further to June levels. Yesterday’s economic calendar included modest increases in CPI-trim and CPI-median measures for Canada, while the CPI-common – the Bank of Canada’s preferred indicator – was unchanged at 1.8%. Despite this, the data confirmed that inflation averaged 4.1% throughout Q3, which is still above the Bank of Canada’s forecast of 3.9%. This means the data shouldn’t discourage the Bank to announce an end to its QE programme next week during its policy meeting. The modest increases in inflation mainly reflect the impact of supply chain disruptions on food and automobile prices, and with those disruptions ongoing, it is likely prices will continue to be pressured until at least year-end.
USD
The dollar continued to weaken throughout yesterday’s session, trading in the red against the entire G10 currency board as the market mood remained better supported than earlier in the month. This morning, the DXY index weakened beyond October’s lows despite nations hitting the headlines with surging Covid cases and some European countries even reimposing restrictions or calling for new restrictions. Policy expectations being more anchored at the moment arguably also contributed to the USD strength seen over the past month running somewhat out of steam. Fed members Randal Quarles and Loretta Mester further confirmed market expectations yesterday backing the taper timeline that has recently been called for by other Fed members, namely for tapering to start in November. Quarles also refuted suggestions the Fed is behind the curve in responding to rising inflation, which he believes is transitory, while Mester added that rate hikes won’t be on the agenda any time soon.
EUR
The euro is in wait-and-see mode, broadly following US dollar moves while markets await the two-day EU summit in Brussels that starts today. EU leaders will discuss their response to the recent surges in energy prices as they stated Brussels would look into longer-term options to address the price shocks. Beyond that, the EU clash with Poland over judicial independence will also hang heavily over the summit table along with the Brexit saga and potential easing of Covid travel rules. The summit will most likely be Angela Merkel’s last one as Germany’s Chancellor. In other news, Bundesbank Chief Jens Weidmann announced yesterday he is stepping down from his position. Weidmann is one of the more hawkish bank chiefs in the eurozone, and with him stepping down markets are left in the dark as to what views his successor will take. Today’s calendar is sparse for the eurozone, with eurozone economic sentiment at 15:00 BST being the main data note of release. Elsewhere in Europe, markets expect the Turkish central bank to cut interest rates by 50bps today after the CBRT embarked on an easing cycle last month, cutting rates by 100bps then.
GBP
Sterling was initially being weighed down by Covid headlines as the nation hit the news with its surging Covid cases while the NHS called for the government’s plan B to be enacted. Expectations for newly imposed restrictions were pushed back when UK Health Secretary Sajid Javid rejected the idea of plan B, which would have entailed mask-wearing and working from home. While cases have been rising, Javid acknowledged the country’s advanced vaccination rate means deaths and hospitalisations are nowhere near rates seen earlier in the year. He added that the government will stay vigilant, however, “preparing for all eventualities while strengthening our vital defences that can help us fight back against this virus”. Javid also stated that winter poses the “greatest threat” to the recovery from the pandemic, as cases could climb as high as 100,000 per day. Today’s calendar is light for the UK with no central bank speakers or market-moving data releases scheduled.