Daily Currency Update

USD - US Dollar

Before the FOMC meeting, a slew of US data is on the horizon, categorized into three groups. First, labor market data includes the ADP employment report, which missed expectations last month with a 89k growth in private sector jobs. The JOLTS report on job openings is also on tap, with an unexpected rise in August to 9.6 million. Second, real sector reports encompass September construction spending and October auto sales, which are of varying interest due to the Q3 US GDP release and a strike affecting auto sales. Third, there are surveys, including the manufacturing PMI and ISM, with the latter being more significant. The market seems to anticipate a Fed rate cut, with a 50% chance by mid-next year and a quarter-point cut fully priced in by July 2024. The December 2024 Fed funds futures imply a rate of 4.72%, reflecting market acceptance of the Fed's September forecast for two rate cuts in 2024 and a 40% chance of a third cut. The FOMC statement is expected to remain largely unchanged, but discussions may focus on the rise in long-term yields, possibly linked to increased supply. The Treasury will also announce details of the upcoming quarterly refunding, which may include increased coupon sales.

CAD - Canadian Dollar

Canada's economy remains a disappointment, showing no growth in July and August, contrary to economists' expectations. This data raises concerns that the Canadian economy may have contracted in Q3, following a 0.2% decline in Q2. The Bank of Canada had previously projected a Q3 rebound of 0.8%, but StatsCan attributes the economic weakness to factors such as inflation, forest fires, and drought. Various sectors, including mining, oil/gas, utilities, manufacturing, accommodation, food services, and agriculture, reported declines in activity. Agriculture, in particular, contracted by 3.2% in August due to dry conditions. Services saw a slight rise of 0.1%, while the goods-producing sector contracted by 0.2%. The manufacturing PMI, while not typically a market mover, is due today and hasn't been above the 50 boom/bust level since April. A recent GDP miss caused the Canadian dollar to hit a new yearly low against the US dollar, briefly trading below CAD1.3890. If Friday's jobs report disappoints, CAD1.40 could come into view. Observe USD/CAD trends.

EUR - Euro

The preliminary estimate of October's eurozone CPI, reported at 2.9%, recently fell below the US CPI for the first time since June 2022. The US October CPI, due on November 14, could see a 0.3% increase, potentially pushing the US year-over-year rate down to 3.5% from the 3.7% observed in August and September. Meanwhile, the eurozone's core rate is at 4.2%, its lowest since July 2022, and a 0.3% increase would likely maintain the year-over-year rate at 4.1%. The euro reached a five-day high near $1.0675 before declining to around $1.0560 after weaker-than-expected CPI and Q3 GDP reports. Although trading is light due to All Saints Day celebrations, the euro remains under pressure, trading at about $1.0545, close to Monday's low.

GBP - British Pound

The final UK October manufacturing PMI came in at 44.8, slightly lower than the preliminary estimate of 45.2 but showing improvement from September's final reading of 44.3. The contraction has eased for the second consecutive month, with the last time it was above the 50 boom/bust level being in July 2022. The lowest point this year was in August at 43.0, and it stood at 45.3 at the end of last year. The Bank of England (BOE) is set to meet tomorrow, and while a unanimous vote is unlikely, the swaps market sees virtually no chance of a rate hike. The odds of a hike next month have dropped to around 20%, down from over 50% a month ago. The BOE's forecast of 0.5% growth in 2024 may be at risk of being reduced. Sterling reached a peak near $1.22 in early North American trading yesterday but dropped to $1.2120 before stabilizing. It has struggled to rise above $1.2160 since then, holding above yesterday's low. Monday's low was near $1.2090, and last week's low was around $1.2070.