CAD
The loonie once again struggled to match price action across other G10 currencies on Thursday. USDCAD traded sideways, perhaps surprisingly given the rally for both oil and equities. That said, the pair still resides below 1.36, leaving it looking cheap in our eyes. As such, we would not be at all surprised to see further underperformance today, with only a handful of third-tier Canadian data set to be published.
USD
A 0.5% slide for the broad dollar was arguably the key takeaway from yesterday’s trading, with this move lower continuing into the early hours of this morning. In fact, the move lower for the greenback saw the DXY index charting lows not seen since the end of last week. It also looks distinctly out of whack with fundamentals as we see them. Yesterday’s PPI reading modestly exceeded expectations, while initial jobless claims printed at 230k, near as makes no difference in line with last week’s 228k print, and market expectations that looked for a 226k reading. All told then, there was little by way of domestic catalysts to underpin yesterday’s price action. Admittedly, a strong session for equities and oil points to risk conditions on the front foot, likely helped by the ECB’s decision to cut rates, a backdrop that would favour upside across other G10 FX. This has seen another boost this morning too with big news from China, where authorities have increased the retirement age to 63 and 58 for men and women respectively, a development that should be positive for global growth conditions. Meanwhile, ahead of the weekend university of Michigan sentiment readings are the last notable release from the US, though unlikely to move markets. This should leave the dollar treading water today, before next week’s Fed meeting sees a rebound for the greenback, if our expectations are met and Chair Powell steers towards a series of 25bp rate cuts.
EUR
The ECB cut rates by 25bps as expected on Thursday, the second such move this year. More surprising, however, were revisions to staff forecasts. With self-side economists almost unanimously calling for a cut, this was the major focus for markets. Headline inflation projections were unchanged from June, while growth estimates saw a modest downgrade in response to weak demand conditions. But core inflation forecasts for 2024 and 2025 were revised up, in light of recent service price outturns. This looks inconsistent at first glance, a point President Lagarde was challenged on in her press conference. She largely stuck to her talking points, offering little explanation and keeping all options on the table, leaving markets to interpret this new set of revisions as hawkish at the margin, helping fuel a 0.5% rally for EURUSD. We are not so certain this is the right read – indeed, one possible way to achieve such a set of forecasts is if weak underlying conditions prompts a faster pace of easing than previously expected. As such, we continue to think that rate cuts are in play at both the October and December meetings, leaving us wary on the euro, despite yesterday’s price action.
GBP
A blank data calendar saw sterling in limbo through Thursday trading. All told, this meant a 0.6% rally for GBPUSD as the pound kept pace with the rest of the G10 FX complex, while GBPEUR broadly tracked sideways, reflecting the limited range of market catalysts. Today, inflation expectations are the only UK event of note, published at 09:30 BST. Beyond that, it should be a quiet run into the weekend for sterling traders, with attention likely to shift to next week, with CPI and a BoE rate decision coming up.
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