USD
The dollar slipped on Wednesday, with the DXY index falling 0.2%. This move lower for the greenback was helped by US Q3 GDP modestly undershot expectations. Having expected to see the economy grow by 2.9% QoQ annualised, activity actually expanded by 2.8%. That said, this was accompanied by a core PCE reading that at 2.2%, delivered a 0.1pp beat to the upside, muddying the waters for markets. Much clearer cut, and the major factor underpinning yesterday’s dollar slide in our view, were comments from the Fed’s Brainard. These suggested downside risks to Friday’s jobs data due to hurricane disruption, a point we remarked on yesterday. Today, Challenger job cuts, PCE data, and initial jobless claims should keep markets busy ahead of payrolls on Friday. Even so, we are inclined to agree with Brainard on this occasion, seeing further downside risks for the dollar ahead of next week’s elections.
EUR
Yesterday’s stronger-than-expected GDP readings likely kill off any prospect of a 50bp cut from the ECB in December, despite dovish noises from some Governing Council members earlier this month. This fact helped EURUSD to climb 0.4% on Wednesday, as eurozone yields rallied and traders pared back ECB easing bets. Today, eurozone inflation figures should confirm that price growth rebounded in October. Markets expect to see headline price growth rise from 1.7% to 1.9% YoY, stemming from energy base effects. That said, the more important figure for markets is likely to be core CPI growth. This is expected to ease marginally, falling from 2.7% to 2.6% YoY according to economist consensus. If realised, we think this keeps a 25bp cut as the base case for the ECB in December, with little euro movement likely as a consequence.
GBP
The UK budget was arguably the major market event on Wednesday, the first by a Labour government in 14 years, and in terms of content, there was much to mull over. On the tax front, a £25bn rise in employer NI contributions was the big takeaway, accompanied by smaller revenue-raising tweaks to capital gains, and inheritance tax, amongst other measures. While this has certainly generated lots of headlines, what should ultimately matter for markets is the overall shape of public spending, and the implications this has for growth. As such, while the budget contained tax raises of around £40bn, we are inclined to see the substantial rise in investment spending as more consequential. Traders appeared to miss this point yesterday, a fact not helped by OBR forecasts that to us look overly pessimistic past next year. With this in mind, the 0.35% fall for GBPUSD on the day seems like an overreaction to us, with the pound’s rally this morning more in keeping with the details of yesterday’s event.
CAD
Canadian GDP numbers later today should keep loonie traders busy ahead of tomorrow’s US jobs report. Markets expect to see growth of 1.5% YoY in August, unchanged from July, but with the economy stagnating on a single-month basis. If these projections are met, this would suggest that the output gap remains negative, weighing on inflation. Such an outcome should keep a further 50bp rate cut on the table for the BoC come December, maintaining upside pressure on USDCAD today.
This content was originally published by our partners at Monex Canada.