Daily Currency Update

USD - US Dollar

The USD has seen a slight pullback this morning, influenced by fluctuations in the US 10Y bond yields which dropped from their overnight peak close to 4.89%. This decrease in yields has facilitated a minor uptick in global stocks, even as commodity prices largely remain subdued. The recent sharp increase in the DXY appears set for potential correction or stabilization. The rally boasts eleven straight weeks of gains, suggesting an unusual linear trend. This week, DXY's performance exhibits some technical vulnerability near significant retracement levels. The rising US long-term yields have bolstered the USD's broad advancements in past weeks. However, sudden shifts in US Treasury yields and the USD hint at potential instability; financial conditions appear to be constricting slightly, and the cost of offshore USD financing is on the rise, hinting at emerging liquidity challenges in the market. Policymakers are likely taking note. Fed's Mester hinted at this uncertainty yesterday, mentioning her doubts about the longevity of the spike in long-term yields. Meanwhile, Treasury Secretary Yellen expressed that prolonged high rates shouldn't be assumed. Upcoming data releases include the ADP jobs report, Services and Composite PMIs, Services ISM, and US Factory Orders. If these disappoint, the USD's recent surge might face pressure. Both Governor Bowman and Chicago Fed President Goolsbee will speak today, though their platforms might not necessarily focus on direct policy discussions.

CAD - Canadian Dollar

The CAD has stabilized near the 1.37 mark after subdued trading activities overnight. The likelihood of a BoC rate hike saw a slight increase yesterday, prompted by assertive remarks from BoC DG Vincent. He highlighted an "uncommon uncertainty" concerning the inflation projection in the midst of persistently high prices. Vincent also drew attention to the potential challenge of businesses continuously increasing prices, both in frequency and magnitude, which might hinder the achievement of stable, low inflation. The takeaway is that the BoC might need to implement more measures to control these prices. January swaps have gone up by 3-4bps since the end of last week, now reflecting a 21bps tightening anticipation. Strong employment data on Friday might solidify market expectations for another rate hike, potentially bolstering the CAD. Observe USD/CAD trends here.

EUR - Euro

The EUR experienced a boost during the European market's opening, thanks to value seekers, as US yields receded from their high points. Additionally, slight upward adjustments to September's Eurozone Composite and Services PMIs contributed to this positive momentum. ECB President Lagarde emphasized that the ECB will maintain its policy at a "sufficiently tight" stance as long as necessary to control inflation. ECB Governor Panetta, known for his dovish stance, is scheduled to speak at 10ET.

GBP - British Pound

Sterling hit a fresh cycle low, approaching 1.2040 during the initial hours of European trading. However, it rebounded by a cent throughout the European morning. The GBP benefited from the broader decline in the USD and positive adjustments to the UK's September Composite and Services PMIs. BoE Governor Bailey mentioned the ongoing challenge of tackling inflation, noting that the task "is not done". Despite this, expectations regarding BoE's tightening remain relatively stable.