USD
The weekend’s main event, a briefing from China’s MoF regarding economic stimulus plans, arguably disappointed relative to expectations. While there was plenty of positive noise from policymakers, many in markets had been hoping for something a little more tangible. Nevertheless, this has still been sufficient to see Chinese equities start the week in the green, albeit with little passthrough to risk-sensitive FX given the underwhelming lack of detail. Today, the dollar is likely to be a sideshow, with US markets largely closed for Columbus Day. Indeed, this is likely to be a theme this week, with retail sales data the only top-tier release of note. Instead, the focus is likely to be on other G10 currencies, where several key updates are due, with UK and Canadian CPI front of mind, alongside an ECB decision.
EUR
Thursday’s ECB decision is likely to be the key event of the week for euro traders. We expect to see a 25bp cut, accompanied by a signal that the Governing Council intends to up their easing cadence. Our base case remains 25bp cuts through to June 2025, implying 6 back-to-back moves lower for policy rates, starting this week. Given this, we see scope for the market-implied path for eurozone rates to move lower this week with just 5 rate cuts projected over the same period. If we are right, then this should hold downside risks for the euro, albeit largely dependent on how aggressive any steer from President Lagarde is on Thursday.
GBP
A raft of UK data is set to be unveiled this week, starting with jobs data tomorrow, followed by CPI on Wednesday, and rounded off by Friday’s retail sales report. Our sneaking suspicion, however, is that markets are likely to discount much of this week’s data with one eye on the budget on October 30th. With this the first major fiscal event of the new Labour government, it is arguably the most meaningful budget since 2010. It is also being eyed nervously by many in markets given the lack of concrete steer from the new government regarding any potential policy changes, and with the memory of Liz Truss’ disastrous budget still far too recent for comfort. Even so, we will still be keeping an eye on Wednesday’s CPI report in particular. Market expectations foresee the inflation rate dipping below 2.0% once again. With this in mind, we could see a modest dip lower for BoE rate cut expectations if realised offering downside risks for sterling this risk on balance.
CAD
Canada is out today for Thanksgiving, which should keep loonie price action muted to start the week. Tomorrow, however, September’s Canadian inflation report should be a key event for the loonie. Markets are looking for the inflation rate to drop to 1.8%, the lowest rate of price growth since 2021. That said, we think the details of the report will be more significant in terms of impact. While the BoC’s preferred core-median and core-trim measures of inflation are expected to stabilise just above 2.0%, once stripping out the impact of rate-sensitive components, price growth is likely to be dangerously close to 0% on an annual basis, and below that when considering shorter run measures of inflation momentum. All told this should keep the pressure on the BoC to keep aggressively cutting rates, offering downside risks to the loonie when the data is unveiled tomorrow at 13:30 BST.