Another unremarkable day for sterling as it continues to float in a 1.5% band. The data will likely be a key driver for the pound in the coming weeks, but for now, with an election on the horizon and multiple economic scenarios likely to ensue, the pound is likely to trade with less volatility than GBPUSD traders may have become accustomed to over the past 12-months. Regardless, the pound has rallied over the course of this week but is approaching the top of its recent trading range and a key psychological level. To break through this, a serious gauge of how the upcoming election will determine the Brexit process or a substantial downturn in the US dollar will be needed. Notable, GBPUSD could be dragged higher through its recent upper bound if the Nonfarm Payroll release surprises substantially to the downside as the euro pulls the pound higher. October’s Manufacturing PMI is released today at 09:30 GMT with a marginal decline from 48.3 to 48.2 is expected.
The single currency has flown under the radar this week but has continued to drive higher against a softening US dollar. Yesterday’s data releases saw the Eurozone CPI estimate for October come in on target at 0.7% YoY, down from last month’s reading which was also revised down to 0.8%. Positivity came in the fact that the core rate, which is a reliable measure of underlying inflation dynamics, rose from 1.0% to 1.1%, suggesting the downturn in headline inflation is transitory and tainted by more volatile components such as energy prices. Real GDP was also released for Q3 and saw a marginal beat in expectations. Economic growth after discounting for inflation was 0.2%, the same pace as Q2. Overall, the data beat the market’s expectations and helped the euro on its way with the majority of other G10 currencies against the US dollar.
The US dollar has been on the back foot for the whole of the week thus far, as measured by the composite dollar DXY index. The theme hasn’t subsided, and the greenback continues to trade in the red this morning against most notable currencies. Following the Federal Reserve’s decision to pause the current period of cutting rates, dubbed as the mid-cycle adjustment, today’s Nonfarm Payroll data will have added impact. Expectations are low with the median forecast submitted to Bloomberg predicting only 85,000 jobs will be added in October given a large contraction in the manufacturing sector’s employment market. However, with the economy beginning to show signs of slowing, albeit at a slower pace than expected after the preliminary Q3 GDP release surprised to the upside, wage growth measures will be the key market-moving metric. Strong wage growth is necessary for a consumer-based economy like the US to weather trade protectionist measures.
The loonie has become somewhat subdued following the Bank of Canada meeting and failed to capitalise on broad USD weakness yesterday. The slight miss in August’s GDP didn’t help support the loonie’s initial rally, but the 1 percentage point undershoot at 1.3% growth was arguably counteracted by a similar upward revision in July’s reading to 1.4%. Thus far, growth data is on track for the economy to reach the BoC’s 1.5% GDP forecast. This morning the loonie has reconnected with the broader G10 rally against the US dollar. October’s manufacturing PMI is the only piece of top-tier data in the calendar today.
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