News & Analysis

USD

USD lost ground against most of its major peers yesterday as US consumer confidence fell sharply yesterday and US consumers continue to see accelerating inflation looking out over the next 12 months. According to the CME Group’s FedWatch Tool, the markets are currently pricing in over a 75% chance that the Federal Reserve will cut interest rates by another 50 basis points in November. Adding to this is the prevalent risk-on environment, which continues to undermine the safe-haven dollar. That said, the Relative Strength Index (RSI) on the daily GBPUSD chart has climbed beyond the 70 mark, which is often an indicator of USD being oversold.

Later today during the early North American session, New Home Sales data from the US might contribute to producing short-term volatility. However, market participants might refrain from placing aggressive bets ahead of speeches by influential FOMC members this week, including the Fed Chair Jerome Powell on Thursday, and the release of the US core PCE Price Index on Friday, which is the Fed’s preferred inflation measure.

EUR

Yesterday the Euro experienced a mixed performance against the USD. While it initially gained ground due to the weaker dollar, the Euro’s strength was tempered by a disappointing Ifo Business Climate report from Germany. Although, having said that, EUR has started today on the march against USD. However, the expectation of another interest-rate cut by the European Central Bank (ECB) or any signs of weakness in the Eurozone economy could cap the upside for EUR against USD.

The ECB governing council member Klaas Knot said on Tuesday that the central bank would continue to reduce the interest rates at least through the first half of 2025, to a level between 2% and 3%. Meanwhile, ECB policymaker Madis Muller noted another interest-rate cut next month cannot be ruled out, but reckons policymakers may lack sufficient data to make definitive judgments on the region’s struggling economy.

GBP

Sterling continued its recent strength against USD, reaching its highest rate since March 2022. GBP continues to draw support from expectations that the Bank of England’s (BoE) rate-cutting cycle is more likely to be slower than in the United States. In fact, BoE Governor Andrew Bailey said on Tuesday that the path for interest rates will be downwards, though the progress in this direction will be slow and unlikely to fall back to ultra-low levels without very big shocks. There isn’t any relevant market-moving economic data due for release from the UK today. However, a scheduled speech by the BoE MPC Member Megan Greene might influence GBP.

CAD

CAD gained ground on Tuesday, testing multi-month highs against the softening USD. Markets are pivoting into a USD-short stance on rising expectations of future Fed rate cuts, helping to give the CAD a leg up. Canada remains largely absent from the economic calendar this week, but an appearance from Bank of Canada (BoC) Governor Tiff Macklem helped to provide a springboard for CAD by reminding markets that the Bank of Canada is committed to carefully observing deteriorating market conditions and giving a casual head-nod to credit-crunched Canadians.

 

 

Disclaimer
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