Daily Currency Update

USD - US Dollar

The USD maintains a slightly weak tone, while the DXY is mostly stable, close to the previous day's low. The decrease in US CPI data has positively influenced FX and overall markets, which are showing strength in this session, as evidenced by the predominantly green equity screens. Asian markets have surged, further boosted by the People's Bank of China injecting significant liquidity through its medium-term lending facility. Bond markets show mixed responses today, with US Treasuries slightly down. Crude oil prices are falling, whereas iron ore and copper are seeing increases. Today's economic news may not be very favorable for the USD. Retail sales are anticipated to decrease by 0.3%, and PPI data could indicate low inflationary pressure in the US economy due to declining energy prices. The market is currently convinced that further Federal Reserve tightening is very unlikely. The conversation may now shift to when the Fed might begin reducing rates. Yesterday's significant drop in the USD suggests a reversal of its rally in the second half of the year. A considerable portion of those gains has been reclaimed, and further losses appear probable in the short to medium term. Fundamentals are less supportive of the USD, with short, medium, and long-term price indicators now showing a bearish trend. In a slightly positive development, US lawmakers have passed a temporary funding bill to prevent a government shutdown next week, though this only defers the issue to next year.

CAD - Canadian Dollar

The CAD showed some improvement yesterday as the USD softened, but its gains were limited compared to other major currencies. The difference in yields became slightly narrower, but they still strongly favor the USD, which continues to negatively impact the prospects for the CAD. This trend may persist, especially with the anticipated weak manufacturing and wholesale trade sales data from Canada. However, there is still a chance for the CAD to strengthen slightly. The economic future of Canada remains closely linked to that of the US. Canadian progress on inflation is expected to be slower than in the US, and it is anticipated that US interest rates will decrease more rapidly than those in Canada. Observe USD/CAD trends.

EUR - Euro

In September, industrial production in the Eurozone declined by 1.1%, a bit more than anticipated. In the same month, the Eurozone's trade balance showed a surplus larger than expected, at EUR 9.2 billion. The European Commission's autumn forecasts have slightly downgraded the growth projections for 2024, reducing the GDP estimate to 0.6% from the previous 0.8%, while increasing the inflation forecast to 3.2% from 2.9%. However, this growth estimate is still in line with the consensus estimate of 0.7%, and it doesn't significantly change the outlook for the euro, as all major economies are expected to face a slowdown in growth next year. The euro remained largely unaffected by this data, consolidating just below its high from the previous day. Currently, the euro's main advantage is simply that it is not the USD.

GBP - British Pound

Today, the GBP is the poorest performer among the major currencies, declining by 0.3% against the soft USD. This follows the release of UK CPI data that was weaker than anticipated. Headline inflation remained flat in October, against a forecast of a 0.1% increase, influenced by lower energy prices. Year-over-year, inflation dropped to 4.6%, marking the lowest rate in two years. While PPI data indicated a larger-than-expected monthly increase of 0.4% in input costs, factory gate prices have fallen 0.6% over the year. Despite these figures, policymakers are likely not overly optimistic; their main focus for now is likely to be on managing market expectations regarding potential rate cuts.