Daily Currency Update

USD - US Dollar

The DXY dollar index dropped about 3.5% since October, attributed to expectations that the Federal Reserve's tightening cycle might end. Despite traditional weakness in November and December, this sell-off seems premature. This week's focus includes the Fed, OPEC+, and US data. The Fed's Beige Book and speeches from key figures like Chair Jay Powell will provide insights. The Beige Book's economic overview is crucial for the FOMC's 13 December meeting, and its content could influence expectations of monetary easing next year. For OPEC+, an anticipated Saudi supply cut extension could support oil markets, slightly benefiting the dollar. Key US data includes October's core PCE inflation and Friday's ISM Manufacturing data, with Thursday's inflation data posing the biggest downside risk to the dollar.

CAD - Canadian Dollar

The CAD ended last week strongly but has remained relatively unchanged today, underperforming against other major currencies in a generally soft USD environment. The better-than-expected Retail Sales data provided some support for the CAD. Additionally, the covering of significant CAD short positions contributed to its recent strength around the data release. Key upcoming data for the CAD includes GDP on Thursday and employment figures on Friday. While US data has been trending weaker, Canadian data has been consistently steady or slightly better than expected, benefiting the CAD. The current fair value estimate for the CAD is around 1.3667, aligning closely with its spot value. Observe USD/CAD trends.

EUR - Euro

EUR/USD remains strong but may face resistance around 1.0965/1.0100. The dollar's sell-off might be short-lived. Key data from the Eurozone includes November's flash CPI on Thursday, where a decrease in both headline and core inflation rates to 2.7% and 3.9% year-on-year is expected. This could support expectations of a 70bp easing by the ECB next year. Additionally, investors are watching Germany's fiscal developments, which could influence perceptions of the Eurozone's economic stagnation in early 2024. The forecast suggests a possible correction of EUR/USD to the 1.0825/1.0850 range this week.

GBP - British Pound

Sterling has recently improved, boosted by a favorable global risk environment and the UK government's plan to invest £20 billion in the economy. This fiscal approach contrasts with Germany's constraints. Additionally, better November PMI readings have supported the pound. Consequently, investors anticipate only 40-50bp of Bank of England (BoE) easing next year, less than expected from the Fed or ECB. While the UK data calendar is light this week, several BoE speakers, including Governor Andrew Bailey, will address monetary policy. Bailey's recent language suggests a continued restrictive monetary policy for a significant period. The GBP is expected to remain strong in this context.