Daily Currency Update

USD - US Dollar

The USD remains strong, although its gains against major currencies are relatively modest. In Asia and Europe, stock markets are experiencing declines, and US futures are showing weakness. Crude oil prices have dipped slightly, and there is continued volatility in the bond market. The rise in Treasury borrowing costs can be attributed to several factors, including the resilience of the US economy, a more hawkish stance from the Federal Reserve, and some fiscal slippage. The political divide in Congress may also be contributing to this trend. Despite the overall strength of the US dollar, it ended the week on a lower note in terms of the DXY index, and late-week trading in the index showed some technical weakness, despite the uncertain risk environment. Today's price action reflects a continuation of this trend to some extent. Notably, the correlation between the US dollar and yields and spreads has weakened compared to August and September. Looking ahead, the upcoming week is relatively light in terms of economic data. However, Thursday's release of Q3 GDP figures is anticipated to show strong growth at 4.3%, which could provide support to US yields.

CAD - Canadian Dollar

The CAD continues to hover near recent lows within its established range. There is a prevailing sense of reduced risk appetite in the markets this morning. However, the concerns from late last week regarding a potential escalation of the Israel/Hamas conflict over the weekend have not materialized. There are indications that Western governments are actively working to de-escalate the situation. The upcoming event with the potential to impact the CAD is the Bank of Canada's policy decision scheduled for Wednesday, which represents the only significant event risk for the CAD this week. The soft Consumer Price Index (CPI) data released last week has led to lowered market expectations that the Bank of Canada will tighten its monetary policy before the end of the year. Nevertheless, considering the tight labor markets and high wages, the Bank of Canada is likely to maintain a cautious stance regarding the overall price outlook for the time being. Observe USD/CAD trends.

EUR - Euro

It seems that the peak of positive economic surprises in the United States occurred around the middle of the year. Although they remain in positive territory, these surprises are now showing a slight downward trend. Concurrently, economic surprises in the Eurozone are on the rise, reflecting seasonal patterns. While there are definite challenges facing the Eurozone economy, such as rising interest rates, uncertainty in energy prices, and weak export markets, it's possible that market sentiment has become overly pessimistic about its prospects. The support for the Euro (EUR) may be partially driven by positioning in the market, but a further shift in relative economic surprises should provide more substantial fundamental support for the EUR.

GBP - British Pound

Slightly more than a year after the Truss government's tumultuous period, Moody's has improved its credit outlook for the UK by shifting it from negative to stable last Friday. However, significant challenges persist. Economic pressures that could lead to a recession are gaining strength, even though the Bank of England remains hesitant to acknowledge that its mission to combat inflation is finished. Tomorrow, we will receive reports on September job data and October PMIs. In the short term, the British pound may continue to receive support if it weakens toward the 1.20 level. Nevertheless, it might prove difficult to achieve significant gains at this time.