Daily Currency Update

USD - US Dollar

The USD continues to remain firm with the DXY trading near its peak from yesterday, seemingly ready to secure a tenth straight weekly gain. US yields reached new cycle peaks following the Federal Reserve's decision on Wednesday and are holding onto gains, surpassing their former 2023 highs. The 'high for longer' narrative, emerging post-FOMC decision, supports the USD. However, even with yields surpassing recent highs, the overall valuation of the USD appears somewhat inflated. This overvaluation, even short-term, combined with the ongoing rise of the USD over the last two and a half months, makes the prospect of a more significant USD consolidation very plausible, especially considering the risks of strikes and government shutdowns. In the current session, the USD remains solid against the core major currencies. The stock market performed suboptimally yesterday due to increasing yields; European stock markets are showing weakness, but US equity futures are in positive territory, and crude prices have bounced back. Now that the Fed’s “quiet period” has concluded, remarks from Cook (voter), Daly (non-voter), and Kashkari (voter) are expected to surface today.

CAD - Canadian Dollar

The CAD has held a small gain over the USD in this session, having retraced to the 1.35 area on Thursday. It has recovered well from the intraday low of the previous day despite the prevailing strength in the USD. The slack in stocks has to some degree influenced CAD sentiment, but the steadfast and somewhat contracting US-Canada spreads are providing stability to the CAD. Domestic yields are more robust, a reflection of the CPI data surpassing expectations, and aiding in maintaining spreads. July Retail Sales data from Canada will be released this morning; a rise of 0.4% is anticipated, consistent with the preliminary data unveiled with the slightly upbeat report in June. However, sales excluding autos were weak in June, and volume sales were in the negative. The pressure from interest rates on consumers is tangible; however, with employment and wages remaining stable and savings depleting, the resilience in retail activity could persist. Observe the USD/CAD trends.

EUR - Euro

Preliminary PMI data from the Eurozone for September presented a somewhat mixed picture, remaining overall subdued. The activity data from France was generally below expectations, causing France's Composite to reach 43.5, compared to a forecast of 46.0. Conversely, most German data outperformed expectations and showed improvement from the previous month—although the key indices all stayed below 50. Consequently, the preliminary Eurozone Composite index for the month was slightly above the projected 46.2, while Manufacturing dropped to 43.4, against a forecast of 44.0, and Services saw a modest rise to 48.4, compared to the anticipated 47.6. While this denotes marginally better news, it doesn’t suggest any significant alterations in the lukewarm economic outlook. The EURUSD continues to consolidate losses around the low 1.06 support zone, potentially indicating that much of the negative news may already be factored into the EUR’s value.

GBP - British Pound

Reports on UK data presented a combination of mixed to weaker results. Retail Sales experienced a 0.4% increase in August, which is slightly below the forecast. Meanwhile, the PMI data for September were largely unsatisfactory; although Manufacturing did see a recovery to 44.2 from August’s dismal 43.0, Services declined to 47.2 (from 49.5), and the Composite index fell to 46.8 (from 48.6 the previous month), marking a new low in the post-Covid era. The underwhelming data, coupled with potentially escalating concerns about a recession, will maintain pressure on the GBP, following its decline subsequent to the BoE’s decision to keep rates steady.