USD
Perhaps unsurprisingly, the debate between Harris and Trump dominates the newspaper front pages this morning. Consensus opinion points toward Harris as the victor, with betting markets now giving her a 10% greater chance of winning the Presidency when compared to her Republican rival. The two were neck-and-neck pre-debate. We would note that a Taylor Swift endorsement of Harris for President is likely also doing some of the heavy lifting on this score. Even so, the notable jump in Harris’ poll lead is impacting FX markets, with the broad dollar softening by 0.2% in the immediate aftermath of events overnight. Today, however, US CPI is the focus. As we have noted previously, this should have a more muted impact than usual given an increased focus on the employment side of the Fed’s dual mandate. Markets expect a 0.2% MoM core inflation print. This outcome should leave the dollar relatively undisturbed, shifting attention to the upcoming Fed meeting as the next major catalyst for the dollar. That said, where there are risks, we think they are asymmetric this afternoon. Specifically, we see little prospect of a hot print derailing a 25bp from the Fed next week. But a hard stop on price growth could resurrect recession fears, steering towards a larger 50bp cut from the FOMC, weighing on the dollar later today if realised.
EUR
A very light data calendar should keep EURUSD trading at the mercy of US developments today, ahead of tomorrow’s ECB rate decision. This has already seen the pair climb 0.2% overnight, with the euro trading broadly in line with other G10 currencies. While we see upside risks for the pair short term given our view of US CPI later today, a downward revision to ECB forecasts tomorrow should be a dovish steer for markets, helping to unwind this latest move higher for EURUSD. We continue to expect the pair to trade below 1.10 post-ECB.
GBP
Even as other major currencies are posting gains against the dollar this morning, sterling is stuck in a rut. July GDP readings printed below expectations, indicating the economy flatlined for the second month in a row, having been expected to grow by 0.2% MoM. That said, while this latest data is weighing on sterling for now, we don’t see it should be overly concerning. The timelier S&P PMI readings had flagged a growth slowdown through June and July, followed by a rebound in August. It might, however, shift the calculus for the MPC ahead of next week’s policy meeting. Indeed, while swap market-implied expectations still see only a marginal chance that the BoE cuts rates, this has risen to 22% in early trading, up from 17% yesterday afternoon.
CAD
Yesterday saw USDCAD rising through 1.36, with the loonie hitting a three-week low against the dollar. This slide came as falls for both oil and equities conspired to weigh on CAD given the typical sensitivity of the loonie to both. That said, the move higher for USDCAD does leave the pair trading at levels that better reflect underlying fundamentals in our view. Specifically, given our view that the Fed is likely to disappoint market easing expectations, even as the BoC continues to deliver consecutive cuts, rate differentials should be supportive of USDCAD upside over the medium term. With this in mind, and a light domestic data calendar in store, attention should be squarely focused on US CPI this afternoon.
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