Daily Currency Update

USD - US Dollar

The US dollar strengthened after the latest US CPI data was published, which saw bond yields surge. This report highlighted certain areas of inflationary concern (notably in services) that might alarm policymakers. However, a lackluster Treasury auction yesterday increased bond market volatility, further boosting the dollar and negatively impacting stocks. Despite markets overlooking robust employment figures last Friday and the higher-than-anticipated PPI statistics from earlier this week, the same wasn't true for the recent CPI results. Bonds have stabilized somewhat, with US Treasurys showing a bit of outperformance. Stock markets seem subdued, but oil prices are rising, reflecting the tension in Israel/Gaza. China's CPI for September came in below expectations, and with continued weak growth in exports and imports, regional stocks felt the pressure. Boston Fed President Collins mentioned that elevated yields support the notion that the Fed might be reaching its rate cycle apex. However, he also hinted that more stringent measures aren't necessarily ruled out. As the aftermath of the CPI release unfolds, it'll be intriguing to observe whether discussions about higher rates assisting the Fed in its objectives continue.

CAD - Canadian Dollar

The CAD has steadied slightly below 1.37 following its notable decline yesterday. While there's a muted risk appetite, it's somewhat balanced by a rise in crude oil prices, especially after Israel advised northern Gaza residents to move southward. Today, among major currencies, the CAD is showing modestly better performance. The yield spreads between the US and Canada have reduced as the week draws to a close, even with heightened attention on the surge in US yields. This should help in curtailing further CAD drops, though we might still see a fluctuating and broad trading range for a while, especially leading up to next week's release of key Canadian data, including the CPI. Observe USD/CAD trends.

EUR - Euro

EUR/USD rebounded slightly from its late North American trading session low during the overnight trades but is now declining towards the low 1.05 range in the initial trading hours. A decrease in US yields, with the US10YY moving away from the 4.70% mark, coupled with somewhat tighter spreads, could reduce stress on the EUR in the short term. However, the EUR's persistent yield shortfall will likely keep a lid on its appreciation for the time being.

GBP - British Pound

BoE Governor Bailey stated that while the UK has achieved commendable progress concerning inflation, further efforts are needed. He emphasized that the policy should stay stringent, resulting in a "very subdued" UK outlook. Bailey mentioned that policy decisions would remain stringent as authorities address the ongoing high prices. The soon-to-retire BoE DG Cunliffe, who will be leaving by the end of the month, is scheduled to speak at 12.30ET.