Daily Currency Update

USD - US Dollar

Friday's employment data in the U.S. contradicted expectations of a major economic downturn or recession, casting doubt on the likelihood of a more cautious approach by the Federal Reserve. This has led us to believe that the U.S. dollar now stands on firmer footing. Considering the widespread anticipation of decreasing inflation, the upcoming inflation data could pose a greater risk of boosting the dollar, especially if the core CPI shows an increase of 0.3% month-over-month. Our expectation is for the Fed to maintain a hawkish stance in its upcoming meeting on Wednesday, emphasizing resistance to interest rate cuts. Despite robust U.S. employment figures, market predictions still include a Federal Reserve rate reduction by May and a total easing of over 100 basis points by the end of 2024. This week could see some adjustment to more hawkish expectations, potentially providing further support for the dollar. We anticipate the dollar will gain most notably against currencies whose central banks are not expected to offer a hawkish response this week, especially those pro-cyclical currencies likely to underperform. The U.S. economic calendar remains uneventful today.

CAD - Canadian Dollar

In Canada, a decline in new condominium sales might delay the commencement of various housing projects, suggesting a potential decrease in housing starts in the upcoming week's data. Despite a drop in wholesale and factory sales in October, there's still potential for a positive GDP growth rate in the fourth quarter. Generally, it's a quiet week for data, which means the market will likely pay more attention to news from the United States. Observe USD/CAD trends.

EUR - Euro

 Unlike the Fed, the European Central Bank lacks a strong forecast for economic activity. However, as the Governing Council convenes on Thursday, our anticipation is that the predominant sentiment from Frankfurt will express dissatisfaction with the excessively ambitious expectations for interest rate reductions. This stance is likely to support the euro, which has been underperforming. Nevertheless, a firm stance by the Fed in favor of maintaining current interest rates could continue to suppress the short-term interest rate differentials between the EUR and USD, potentially restricting any gains in the EUR/USD. Look for the EUR/USD gains limited to 1.0830/1.0850.

GBP - British Pound

Markets are currently anticipating approximately three rate cuts next year, each by 25 basis points. This figure 25 basis points less than the expected cuts in the US and 50 basis points less than those anticipated in the Eurozone. However, considering the UK needs to make more progress in reducing inflation, we foresee the Bank of England (BoE) emphasizing a 'higher for longer' interest rate policy in its Thursday meeting, aiming to temper expectations for rate cuts. Such a stance is likely to restrain any significant rise in the value of the GBP this week.