USD
The greenback notched higher on Wednesday, even with little on the docket domestically. Instead, a broad assessment of central bank easing expectations following weak UK CPI data released early morning, helped the dollar to make headway. Today, retail sales data should be the major domestic data release of note. Consensus expectations are looking for a core sales print of just 0.3% MoM. That said, the bad weather of recent months will likely see markets view any downside surprise with some scepticism, limiting the impact on the dollar.
EUR
The ECB will deliver their penultimate rate decision of the year this afternoon. That said, given softer-than-expected inflation outturns over recent months, combined with weak growth indicators, a 25bp cut to rates should be a done deal. Instead, the market focus will be on any forward-looking hints offered by the ECB. A step up in the pace of easing is widely expected – confirmation of this by President Lagarde should see the euro trading under pressure if realised. Even so, there remains a hint that the Governing Council proves more hawkish than expected this afternoon too. Discussion of the neutral rate remains a possibility, which if unaccompanied by a suggestion that this is lower than previously indicated, is likely to be seen as suggestive that only a handful more rate cuts are in the pipeline.
GBP
The pound lost ground on Wednesday, prompted by a soft set of CPI readings. September price growth figures showed headline inflation slipping to just 1.7% YoY, down from 2.2% in August, and below the 1.9% reading expected by markets. With this weakness replicated across core inflation readings too, traders have accelerated BoE easing bets, now expecting two further 25bp cuts to Bank Rate by year-end. We agree, and as such, are firming up our call for the MPC to cut rates in both November and December. For FX markets, this more aggressive easing path saw sterling finish the day 0.7% lower against the dollar, and 0.4% down on the euro. While this leaves the pound looking a little cheap in our eyes, we doubt this is likely to reverse in the short term, especially with a budget on October 30th rapidly approaching.
CAD
USDCAD continues to trade below 1.38, even in spite of Wednesday’s soft inflation data, and a broader rally for the dollar. Indeed, this comes despite building speculation that the BoC could deliver a 50bp rate cut when they meet next week. We think they should, and given the current mood music, we now suspect they will. As such, we think that the current loonie rally is likely to prove temporary, with 1.38 likely to be tested again next week, if not sooner.
This content was originally published by our partners at Monex Europe.