Daily Currency Update

USD - US Dollar

The USD is trading lower as the weekend approaches, with considerable gains in Spot FX against it. This shift has been fueled by an improvement in the risk sentiment, leading to widespread gains in stocks and bonds. A correction in the dollar trend has been anticipated and has been overdue. Even though the current price movement indicates that this could be unfolding, the decline in USD might be merely indicative of transient end-of-month and end-of-quarter flows. A substantial downward move in the USD, in general, would most probably necessitate a significant shift in long-term rate differentials against the USD. Today's US data publications include figures on Personal Income and Spending, along with PCE data, expected to show an ongoing easing in core prices. The final September U. Michigan Sentiment data are due at 10ET; any significant deviation from the preliminary report in inflation expectations here could impact yields. Williams is scheduled to discuss monetary policy at 12.45ET. Aside from these data points, any unfolding developments regarding the US government shutdown could broadly affect markets; there might be an increase in yields (reflecting concerns about a downgrade) over the weekend if no resolution is reached. Currently, the DXY is barely maintaining an 11th consecutive weekly gain, albeit significantly below its peak. A weak close this week may imply a technical risk of further USD declines.

CAD - Canadian Dollar

The CAD has managed to gain some ground, inching up to the lower 1.34 area against a generally weaker USD, with a 0.4% increase in the session, making it the underperformer among the major commodity currencies. It could potentially add further gains over the session. Canada is set to release its July GDP at 8.30ET, with the consensus predicting a 0.1% rise in output for the month—slightly more optimistic than the flat "flash" reading presented with the June report.  Should the July GDP surpass expectations, coupled with a positive read from the August flash estimate, it would reinforce the idea of a resurgence in Canadian growth, following a mid-year stagnation. It’s worth noting that data disclosed yesterday revealed a 5.8% decline in Canadian job vacancies in July, hitting the lowest since May 2021. Robust data will heighten anticipations that the Bank of Canada (BoC) might still have more work to do. Observe the USD/CAD trends.

EUR - Euro

The gain of the EUR above the 1.06 mark seems more indicative of positioning and short-term flows than a significant shift in market fundamentals. The EUR continues to be generally weak. While EZ/US 10Y spreads did show some narrowing previously, there has been a slight expansion again today. This occurs as core Eurozone bonds are exceeding expectations in performance, following the unveiling of the preliminary Eurozone CPI data for September, which came in lower than expected at +0.3%, compared to the anticipated +0.5%.

GBP - British Pound

UK data presented varied results; the final Q2 GDP remained unchanged quarterly (+0.2%) but saw a slight upward adjustment yearly (to +0.6%, from +0.4%). This data notably revealed substantial upward revisions to business investment, which is a positive sign. However, Q2 witnessed a considerably wider-than-anticipated current account deficit, alongside indications of increased consumer borrowing demand and a deceleration in mortgage demand from the credit data. Adverse money supply data amplified concerns of a recession. Despite these mixed signals, Sterling has primarily overlooked the data, capitalizing on the weaker USD to return to the week’s opening levels.