CAD
USDCAD rose once again on Thursday as markets continued to digest the BoC decision from earlier in the week. That said, the news that really caught our eye overnight was a suggestion that Canada is considering export taxes on certain commodities headed to the US. To put it bluntly, we struggle to understand the logic, a view that is seemingly shared by markets too given current trading levels for the loonie. USDCAD is now above 1.42, a height last scaled in 2020 at the beginning of the COVID-19 pandemic.
USD
The dollar made gains on Thursday, with the DXY index climbing above 107 for the first time since late November. This comes despite limited initial jobless claims surprising to the upside, albeit PPI readings for November did modestly exceed expectations across the board. But it does leave the greenback trading at levels that as we see it, better reflect underlying valuations and risks. The possibility of a hawkish Fed pivot next week, combined with Trump tariffs in early 2025 should both favour continued dollar strength from here.
EUR
The euro slipped against the dollar yesterday following the ECB’s latest policy announcement. While the decision to cut rates by 25bps met expectations, we thought the comments from Lagarde, combined with tweaks to the policy statement, offered some interesting policy hints. In our view, they point toward the idea that rates have not yet reached neutral, and there is at least some thought being given to the notion of taking policy into accommodative territory for a period. With that in mind, we stick with our call for a succession of 25bp rate cuts through to at least June 2025, with widening US-eurozone rate differentials, combined with tariff risks, set to take EURUSD sub-parity in the early part of next year.
GBP
While sterling has, for the most part, had a good couple of weeks, yesterday saw the pound’s fortunes begin to reverse, a trend that has continued this morning. Front of mind for markets is October GDP data which showed the UK economy contracting 0.1% MoM, in line with September’s weak print, but below market consensus which had looked for an expansion of the same magnitude. This leaves GBPEUR trading sub-1.21 and GBPUSD below 1.27 ahead of next week’s PMI data, which should offer some steer on whether this current soft spot for growth is set to continue into year-end.
This content was originally published by our partners at Monex Canada.