Daily Currency Update

USD - US Dollar

The USD is trading lower this morning as investors keep a close eye on developments in the Middle East, with concerns about a potential escalation of the conflict. Stock markets remain relatively stable or slightly down, while bond prices have seen a decrease, and crude oil prices are showing mixed movement. This week carries a significant amount of event risk on the data front, and several prominent central bankers, including Fed Chairman Powell, are scheduled to make speeches. Some members of the Federal Open Market Committee (FOMC) have suggested that the increasing market yields are assisting the Fed in its fight against inflation, potentially reducing the necessity for further tightening. In the US, the New York Federal Reserve will release the October Empire survey at 8:30 AM ET. Harker, a voting member of the FOMC, who believes the Fed is currently at a point where it can maintain steady interest rates, will deliver two speeches on the economic outlook, one at 10:30 AM ET and another at 4:30 PM ET.

CAD - Canadian Dollar

The CAD has inched up slightly during quiet overnight trading, but it's gearing up for a busy week ahead. Today marks the release of the Bank of Canada's Q3 Business Outlook Survey. Recent trends in this survey have revealed a slowdown in economic growth, while inflation expectations remain high and concerns are growing that it will take more time to bring price growth back to the target level. Bank of Canada Deputy Governor Vincent recently pointed out that businesses' pricing behavior has not yet returned to normal, with expectations of larger and more frequent price adjustments. This complexity is making it challenging for the Bank of Canada to combat inflation, he noted. Governor Macklem commented last Friday that while policymakers would take higher long-term interest rates into consideration, these higher term yields should not be seen as a replacement for monetary policy action. Today's survey data, along with the September Consumer Price Index (CPI) report scheduled for tomorrow, will further influence expectations for the policy decision on October 25th. Official statements appear to be laying the groundwork for a potential interest rate hike, and if the Business Outlook Survey highlights persistent inflationary pressures, the CAD may strengthen slightly. Observe USD/CAD trends.

EUR - Euro

The EUR is showing a slight upward movement, rising from the 1.05 range in a relatively calm trading session. The primary driver behind these modest fluctuations seems to be a minor surge in demand due to short-covering, as there are no significant data releases driving spot price movements. Investors might turn their attention to Italy's budget announcement, given the recent widening of the yield spreads between German Bunds and Italian BTPs (currently holding steady at around 200 basis points), with the possibility that some negative news has already been factored into prices. Recent government forecasts have indicated the likelihood of prolonged budget deficits, with a return to the EU's 3% of GDP target not expected until 2026.

GBP - British Pound

Sterling is experiencing a slight decline from its earlier session highs as the North American trading session commences. Economist Pill from the Bank of England (BoE) mentioned that the persistent high inflation in the UK may necessitate a continuous response from monetary policy, indicating the potential need for further tightening. Governor Bailey also made comments on Friday, highlighting that decisions regarding policy tightening are finely balanced. These remarks are likely to increase attention on tomorrow's wage data and Wednesday's Consumer Price Index (CPI) release, as investors seek clues about future policy actions.