Daily Currency Update

USD - US Dollar

The US dollar is trading firmly, although it has slightly retreated from its recent peak levels as we await the release of this morning's economic data. The stock market is showing weakness due to disappointing earnings reports, and there is additional market unease stemming from a brief Israeli army incursion into Gaza overnight. Bond prices have experienced minimal changes, and crude oil prices have seen a slight decline, while G-10 commodity currencies are performing well in comparison. In summary, the US dollar is in higher demand ahead of the anticipated robust Q3 GDP report for the United States. Estimates indicate that the economy is poised to grow at around 4.5%, a significant improvement from the 2.1% growth observed in Q2. Additionally, the data is expected to reveal a notable deceleration in the core PCE data, potentially tempering the enthusiasm surrounding strong economic growth. This realization, coupled with the possibility that this may be the peak performance for the US economy in the near future, could also contribute to some caution. The Federal Reserve's Waller is scheduled to speak today at a payments conference, but it's important to note that the Fed's blackout period remains in effect, so his comments should not touch upon economic or interest rate outlooks. 

CAD - Canadian Dollar

The Bank of Canada met expectations in its announcement yesterday, but there was a noticeable hawkish undertone in the statement, particularly in light of the recognition that tighter monetary policy was effectively curbing price increases and that the already limited room for a smooth economic slowdown was shrinking. Changes in the language used within the policy statement itself indicated that "progress towards achieving price stability is sluggish, and there has been an uptick in inflationary risks." The Monetary Policy Report (MPR) raised inflation projections and postponed the expected return to the inflation target until the second half of 2025. While the threshold for implementing an interest rate hike remains high, the prospect of higher interest rates will persist until there is more evident improvement in core inflation. The Canadian dollar (CAD) has shown little movement for the day but continues to exhibit weakness, hovering around 1.38, and it remains susceptible to potential short-term declines. Observe USD/CAD trends.

EUR - Euro

The decline in EUR/USD has stabilized, with the exchange rate trading in the lower to middle 1.05 range in anticipation of the ECB's policy announcement at 8:15 ET. It is widely anticipated that the ECB will maintain its policy rate at 4.00%, indicating a prolonged period of inaction following the rate hike in September. During her press conference at 8:45 ET, ECB President Lagarde's messaging may mirror her remarks from the previous day, emphasizing that the battle against inflation is ongoing. However, it's unlikely that the policy decision will provide significant direct support for the EUR.

GBP - British Pound

The British pound has experienced a slight decline in value overnight, in line with the performance of other prominent European currencies. The October report from the CBI's Distributive Trades Surveys has revealed a significant decline in retail activity this month, characterized by exceptionally weak sales, diminished orders, and an increase in inventories. This represents the bleakest October performance since 2017 and is indicative of a subdued pattern in consumer demand over recent months, attributed to the backdrop of rising interest rates and growing worries about the cost of living. The outlook for retailers appears to be less promising as we approach the end of the year.