USD
The dollar tracked sideways on Tuesday as US traders returned to the office post-holiday. In truth though, there was little by way of market moving data on offer to stimulate broad FX price action. Domestically, empire manufacturing undershot consensus, while inflation expectations remained unchanged at 3.0%. Neither, however, succeeded in prompting a significant dollar move, whilst an appearance by Donald Trump on Bloomberg proved similarly unenlightening.
This morning, in contrast, a downside surprise for UK price growth has triggered a bout of volatility. Not only has sterling moved sharply lower, but the data has also seen a broader reassessment across other currency pairs. That said, we are inclined to think that price action should calm as the day progresses, with only import and export prices on the docket for the US.
EUR
The euro continues to tread water ahead of tomorrow’s ECB meeting. EURUSD was little changed though Tuesday’s trading, easing only marginally with 1.09 in focus. Whether or not the pair can consolidate sustainably below this level, however, lies in the hands of President Lagarde tomorrow. A dovish steer in favour of successive rate cuts should keep the pair trading under pressure, albeit with upside risks if she fails to do so.
GBP
While yesterday’s labour market data had a less than spectacular impact on markets, the same cannot be said for CPI today, which has triggered a significant sterling selloff. Headline inflation printed at 1.7% YoY, having been expected 0.2pp higher. With this weakness reflected across underlying price growth readings too, markets have accelerated their BoE easing bets this morning. Swap prices now see the odds of two Bank Rate cuts before year end at 75%, underpinning the move lower for the pound, which has given up 0.6% to the dollar and 0.5% to the euro through early trading.
CAD
Similar to the UK, yesterday’s Canadian inflation print was also soft. Unlike pound however, the loonie made gains post release, much to our surprise. USDCAD is now trading sub 1.38 in spite of the weak domestic data which showed YoY price growth of just 1.6% in September, down from 2.0% in August, and a 0.2pp undershoot relative to consensus expectations. To us, yesterday’s readings reinforced the idea that the BoC will need to stay at the head of the easing pack. In fact, we think they have the strongest case of any major central Bank to accelerate to cutting in 50bp increments. Given this, we suspect that yesterday’s loonie bounce could prove short lived – we look for USDCAD to retrace higher today.
This content was originally published by our partners at Monex Europe.