CAD
The loonie pared back some post-Fed losses through Thursday trading. Even so, USDCAD remains elevated, hovering around 1.44 as markets begin to wind down for Christmas. Unlike some other currency pairs, however, we think this one might be worth keeping an eye on over the holiday period. Political uncertainty is weighing heavily on the loonie at present, and risks that the Trudeau administration collapses in the next few weeks are non-negligible. If realised, this could trigger some notable volatility for USDCAD given what should thin trading conditions over the holidays.
USD
The dollar once again ends the week on the front foot, with the DXY index testing 108.50 overnight. That said, this is hardly a surprise to us – Wednesday’s Fed meeting marked the start of an extended easing pause in our eyes, meaning that markets have further rate cuts to price out in the coming weeks and months. The return of higher for longer US rates, combined with growth exceptionalism, offers a favourable backdrop for the dollar to trade against. Barring any major surprises, this should remain the theme over the holiday period too, leaving risks tilited toward a stronger greenback come the new year.
EUR
After initially flirting with a retracement higher, EURUSD ultimately ended Thursday trading flat, and below the 1.04 mark. If our view for the greenback is correct heading toward year end, then that leaves 1.03 in range for EURUSD too, with December CPI the only major eurozone release of note before 2025. As we see it, this muted backdrop should favour an extension of current market trends, and that would imply a continued drift lower for the pair as traders abandon the office over the Christmas period.
GBP
While yesterday’s BoE decision met expectations, leaving Bank Rate unchanged, the 6-3 vote split surprised markets that had broadly anticipated just one dovish dissent. The result was a sharp sterling selloff, with GBPUSD testing the 1.25 level for the first time in almost a month, as traders accelerated easing bets now price a 75% chance the Bank next cuts rates in February 2025. While we see further downside risk on the horizon, expecting 100bps of cut next year, another big leg lower is likely a story for the new year. Indeed, this point has been emphasised already this morning. A disappointing set of retail sales data has sparked almost no reaction from sterling.
This content was originally published by our partners at Monex Canada.