CAD
USDCAD drifted lower during the Asian session on Monday. The weakening of USD and lower US Treasury bond yields after President-elect Donald Trump said he will nominate Scott Bessent as US Treasury secretary weighed on the pair. Canada’s retail sales grew 0.4% MoM in September, in line with the consensus, according to Statistics Canada on Friday. Retail Sales ex Autos climbed 0.9% MoM in September versus -0.8% prior, beating the estimation of 0.5%. Currency markets trimmed their bets for a 50 basis points interest rate reduction next month to around 14%, down from 21% before the data, which means that there is an 86% chance of a 25 basis points rate cut on December 11.
USD
The USD Index (DXY), which tracks the US dollar against a basket of currencies, pulled back to 107.00 from a two-year high of 108.07 as bulls opted to take some profits off the table on the back of a sharp pullback in US Treasury bond yields. However, downside risks for the USD remain limited, as recent economic data has strengthened expectations that the Federal Reserve (Fed) may slow the pace of rate cuts. Scott Bessent, the veteran hedge fund manager who Donald trump picked to become the next Treasury secretary, wants tariffs, a shadow chair for the Federal Reserve and maybe a weaker dollar.
EUR
EURUSD recovered from its two-year low recorded on Friday, during Monday’s Asian session. This rebound can be linked to a correction in the USD, despite robust preliminary S&P Global US Purchasing Managers’ Index (PMI) data released in the prior session. The Euro came under pressure after PMI data highlighted continued weakness in Eurozone business activity. The HCOB Flash Eurozone Composite PMI fell sharply to 48.1 in November, down from 50.0 in October and well below expectations of 50.0. This decline reflects a contraction in the services sector for the first time in ten months, coupled with a persistent downturn in manufacturing. Last Thursday, European Central Bank (ECB) Chief Economist Philip Lane cautioned that a potential global trade war, driven by the expected implementation of President-elect Donald Trump’s higher tariffs, could lead to significant global economic losses. “Trade fragmentation entails sizeable output losses,” Lane emphasized. Following the weaker-than-expected eurozone PMI data, the likelihood of an aggressive rate cut by the ECB has surged. Market expectations for a 50-basis-point reduction in the Deposit Facility Rate, bringing it down to 2.5%, have risen to over 50%, compared to less than 20% before the PMI data release.
GBP
The GBPUSD pair opened in a bullish mood at the start of a new week and for now, seems to have snapped a three-day losing streak and recovered from its lowest level since May. Separately, an extension of the risk-on rally across global equity markets undermined the safe-haven USD and hence offered some support to GBPUSD. GBP continues to be underpinned by reduced bets that the Bank of England (BoE) will cut rates next month, especially after data released last week showed that underlying price growth in the UK gathered speed. Annual UK inflation moved back above the central bank’s target and accelerated sharply to 2.3% in October, suggesting that the BoE will move cautiously on interest rate cuts.
This content was originally published by our partners at Monex Canada.