The pound struggled to remain above key levels against the US dollar yesterday as market sentiment worsened and the dollar strengthened across the board. Against the euro, GBP closed flat on the day in the absence of market-moving domestic headlines. This morning’s price action is more muted despite the big miss in September retail sales. YoY sales including auto fuel dropped by 1.3% vs the consensus of a 0.4% contraction, while excluding fuel, the figure decreased 2.6% vs -1.6% expected. Monthly sales including auto fuel was set to rise with 0.6% but instead fell by 0.2%. GBPUSD mildly weakened following the release, but continued trading within daily ranges. UK Purchasing Managers’ Index figures are eyed at 09:30 BST today for any trading impetus on the last trading day of the week.
EURUSD dropped for the first time in seven days yesterday as the dollar traded in the green across the G10 currency board, while markets focused heavily on headlines coming from the two-day EU summit. During the summit, several EU leaders warned against hasty interventions to address the surge in energy prices, as pleas for immediate action from the EU’s poorer countries went disregarded. Most countries have already cut taxes or approved subsidies to help households and companies, however, for some countries, this is not enough and they opted for new measures on emissions, power, and gas. By the end of this year, the European Commission wants to propose a reform of the EU gas market, reviewing rules on storage and security of supply, which becomes increasingly relevant given the gradual change to green energy. On the monetary front, Bloomberg shared a survey with economists around policy expectations for the European Central Bank. While no policy shifts are expected in next week’s Governing Council meeting, the respondents expect the ECB to increase the pace of the standard Asset Purchase Programme next year and make it more flexible to be able to better address market stress when the Pandemic Emergency Purchase Programme expires in March 2022. Today’s calendar includes eurozone manufacturing, services and composite Purchasing Managers’ Index figures at 09:00 BST.
Investors looked for refuge in the US dollar yesterday as Covid surges hit the headlines globally while economic data from China disappointed. This morning, the dollar slipped after Evergrande took steps to avoid a weekend default. The group has supplied funds to pay interest on a US dollar bond, according to reports from Reuters, just days before the deadline that would have led to a formal default. Yesterday’s data calendar included a new pandemic low in initial jobless claims, pointing to better labour market performance in October as the unemployment benefits have ended and employment has likely increased. Jobless claims fell by 6k to 290k in the week ended Oct. 16. Today’s calendar looks sparse for the US, with Purchasing Managers’ Index figures being the only data of note in the afternoon, however, Fed Chair Powell will participate in a panel on monetary policy before the FOMC blackout period starts on Saturday. Markets will pay close attention to his words given the next FOMC meeting will be less than two weeks from now, but for that same reason, it is unlikely Powell will hit the headlines with any new information.
Yesterday morning saw the loonie breaking through another high against the US dollar to reach highs last seen in June, but as risk sentiment deteriorated throughout the day, USDCAD recovered and closed the day higher – something that has occurred only 4 times in the last 15 trading sessions as rising oil prices have been shielding CAD relatively well over the last weeks. With both Brent crude and WTI taking a leg lower yesterday however, while the market mood was not supporting the loonie either, USDCAD gained around half a percentage point on the day. Some of those gains have been pared back this morning, but looking at the remainder of the day any changes in FX direction should come from broader macro flow given the lack of noteworthy data releases from Canada.