CAD
The loonie spent much of yesterday’s trading playing catch up. As we noted following Wednesday’s BoC decision, the combination of commentary and Bank forecasts was much more dovish than it seemed at first glance, something that should have seen further upside for CAD. While markets failed to react at the time, a good night’s sleep and some time for consideration seems to have done the trick. USDCAD finished yesterday trading higher on the back of accelerated BoC easing bets.
USD
The dollar posted just its second down day this month on Thursday, with the DXY index shedding 0.3%. That said, as we noted yesterday morning, the dollar rally looked to have run out of steam, with limited scope for election risks to offer further upside support for the greenback ahead of polling day on October 30th. Today, a series of second and third-tier data print6s should ensure a quiet end to the week. But coming up, a hectic fortnight for markets is likely to entail a significant uptick in price action across a broad range of currency pairs.
EUR
Despite another soft set of PMI prints, EURUSD still made some marginal gains through Thursday trading, somewhat to our surprise. For now, that leaves the pair trading above 1.08, a move at odds with yesterday’s signal that the eurozone economy is stagnating at best, a reality that should give the ECB Governing Council good reason to consider delivering a 50bp rate cut in December. That argument should be bolstered at the margin today too, with both IFO survey data and ECB inflation expectations, both likely to show a further weakening in the eurozone.
GBP
Despite our initial expectation that PMIs would be the main event on Thursday, yesterday saw a series of headlines regarding the UK budget which we think were notable. The first saw reporting that the Chancellor, Rachel Reeves, would redefine debt for the purposes of her fiscal rule, opening up an additional £50-£60bn in spending headroom. But, for anyone suffering from Liz Truss flashbacks, this was soon followed up by stories that her other fiscal rule – that day-to-day spending must be covered by revenues – would be binding in five years rather than the current rolling target. That is a much tighter restriction than previous iterations, implying that the Treasury will need to save £30-£40bn in day-to-day spending, even as it ploughs money into investments. More to the point, we are inclined to think that this is a sterling positive mix if delivered next week. As such, we continue to see upside risks for sterling ahead of the budget on October 30th.
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