Daily Currency Update

USD - US Dollar

FX markets are stable with global risk assets doing well, yet the dollar remains strong, an unusual trend as it usually weakens in such scenarios. his can be attributed to the fact that while global interest rates are decreasing (benefiting risk assets), they are falling more rapidly outside the U.S., particularly in Europe. The dollar's future hinges on the upcoming U.S. jobs report and the FOMC meeting. The bond market anticipates a weak jobs report, which could strengthen the dollar if the data isn't overly negative. Investors, influenced by shifts in inflation and interest rates, might sell the dollar in any rallies. Today's jobless claims aren't expected to impact markets much. The focus is on the U.S. consumer credit data post-market to see if high credit card rates are impacting consumer behavior.

CAD - Canadian Dollar

The Bank of Canada kept interest rates steady, noting reduced spending and faster-than-expected inflation decline, but didn't dismiss possible future hikes. While this is generally good news for CAD, external factors (US data in particular) remain much more relevant. From a market perspective, the reiteration of the hawkish bias by the Bank of Canada is positive news for CAD, although the acknowledgement of faster inflation decline and the strong impact of tight monetary conditions on the economy have offset the impact on the loonie, which held steady after the announcement. The loonie remains highly affected from a deterioration in US data. In the short term, the last bits of evidence of US activity resilience may support CAD –but we expect the worsening of US (as well as Canadian) growth. Observe USD/CAD trends.

EUR - Euro

Traders are currently expecting more rate cuts from the European Central Bank (ECB) than the Federal Reserve and twice as many as from the Bank of England next year. However, we believe this outlook for the ECB is overly aggressive, predicting only 75 basis points in cuts from June, not the expected 125 basis points from March/April. Today's speech by ECB's Robert Holzman could influence market movements. With such high expectations for the ECB, the EUR/USD exchange rate might not decrease significantly, potentially stabilizing around 1.07, supported by strong U.S. data in the fourth quarter. The EUR/USD is expected to maintain support at 1.0730 today.