🐂 Not all bull runs are created equal. November’s AI picks include 5 stocks up +20% eachUnlock Stocks

The dollar hits new highs

Published 2024-11-13, 06:16 a/m

CAD

The loonie continues to outperform post-election, with USDACD still shy of the 1.40 level. Indeed, market bias still appears to favour treating the loonie as a dollar-lite expression, rather than USDCAD reflecting building upside risks, and what a growing divergence in fundamentals between the US and Canada. This should be on show once again today, provided US CPI matches expectations. If so, we would expect to see some USDCAD upside, with a break of 1.40 on the table.

USD

Tuesday was yest another good day for the dollar. The DXY index hit its highest level since early May, while the Bloomberg dollar spot index rose reached its strongest level since 2022. Moreover, news flow through the day did little to disrupt the greenback’s inexorable rise. Neither FNIB nor SLOOS proved to be revelatory, as expected, while FOMC speakers largely played their cards close to their chests. Instead, it was election fallout and Trump trades that continued in the driving seat for markets. Today, however, US CPI should put data back in the spotlight for traders. We expect to see a 0.3% MoM core inflation print, matching market expectations. More importantly though, we think this will open the door to a much more non-committal stance from the Fed on rate cuts, seeing a further pricing out of December easing bets, in line with our base case for little to no further easing until the FOMC gains greater clarity on upside inflation risks under a Trump presidency.

EUR

While US politics once again grabbed market attention on Tuesday, we also think that developments in Europe are worthy of note on this score. Specifically, French lawmakers rejected an amended budget bill, meaning it is not just Germany that is struggling with domestic political challenges at a distinctly inopportune moment. Indeed, given this it is a little surprising to us that political dysfunction is not weighing more on the euro at present. Granted, the single currency fell to its weakest level in a year against the dollar, with EURUSD challenging the 1.06 level, but it also outperformed most other G10 FX. This morning, French unemployment data has proven a non-event for markets, with a blank docket otherwise on offer. This should keep US CPI and political risk in focus for the remainder of the session, posing further downside risks for EURUSD.

GBP

After outperforming initially following the US elections, yesterday saw the pound playing catch up. Sterling shed almost 1% against the greenback, weakening more than any other G10 currency. That said, we have a hard time just pinning the pounds slide on yesterday’s labour market release. Yes, unemployment rose by more than expected, but this is unlikely to impact policy given the longstanding issues with the labour force survey. To us, this leaves sterling looking undervalued, particularly on crosses. The BoE is likely to be amongst the slowest to ease rates, while growth remains solid when compared to European neighbours, and the UK should be relatively more insulated from trade risks when compared to the EU. In our view, this should see the pound making gains, particularly against the euro. Albeit, such a move may have to wait for the dust to settle on the US elections, and for markets to begin re-focusing on economic divergence as a key driver for FX markets.

This content was originally published by our partners at Monex Canada.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.