USD
The US dollar pared some initial strength on Monday, with the DXY index finishing the day down around 0.1%. Underpinning this modest retreat was a fading haven bid as Middle East tensions look to be cooling, more than offsetting US election risks. We think this will be the story for much of the rest of the week too, albeit one punctuated with a series of notable data releases.
The key risk event ahead of the presidential election on November 5th comes on Friday with the release of the October jobs report. While hurricane disruption has left most economists looking for a soft print, overnight, Bloomberg has suggested that headline nonfarm payrolls might even deliver a reading that lands in negative territory. If realised, this would see US growth fears return to the fore, triggering a significant dollar selloff. While we are not quite that bearish on Friday’s data just yet, we do think risks look increasingly skewed toward dollar downside this week.
EUR
EURUSD made some modest headway to start the week, finishing Monday up around a tenth of a percent, with the pair trading in line with broader dollar moves. That said, the pair has largely been left to tread water so far today, even as data out of Germany has seen GfK consumer confidence nudge a little higher. The November reading landed at -18.3, up from -21.0 in October and exceeding expectations for a print of -20.5. That said, this is still in negative territory by some distance – hardly a ringing endorsement of underlying economic strength, explaining traders’ reluctance to turn more constructive on the single currency just yet.
GBP
With just over 24 hours to go before the UK budget, sterling traders continue to hold their breath. This is arguably the most consequential UK budget since 2010, and perhaps even since 1997. It is also the most uncertain since the introduction of the OBR. In one sense, the broad outline of the budget is well known – Labour has ruled out changes to a large swathe of their policy set, leaving only a limited number of options to play with.
However, in terms of what tweaks might actually be forthcoming, detail has been distinctly lacking. That information vacuum has instead been filled by headline speculation and innuendo, a dynamic that has weighed on sterling over the past month. Our bias is that this leaves a low bar for the Chancellor to exceed tomorrow, one that she will manage to clear given a likely boost to investment spending. This leaves the odds skewed towards a stronger pound on balance, albeit with significant two-sided risk present.
CAD
The loonie traded little changed on Monday, despite BoC Governor Macklem hitting the airwaves. Specifically, we thought his decision to keep all options on the table, including another 50bp rate cut in December, was notable. That said, with markets already seeing this outcome as close to a coin flip, and US elections looming large on the horizon, we suspect USDCAD price action will likely continue to take its direction from events south of the border over the next week or so.
This content was originally published by our partners at Monex Europe.