USD
The dollar’s week-long grind higher stalled on Thursday, with the slipping around 0.1% to just above 102 on a late-session reversal. The morning had looked set to extend the post-minutes rally, but a post from President Trump pledging no strikes on Iran before the midterms knocked Brent and took the edge off haven demand. Today’s preliminary University of Michigan survey at 15:00 BST, expected to slip to 47.6, matters mostly for inflation expectations given FOMC concern on that front. With an October hike largely priced out and December our base case, we expect dips to stay shallow ahead of next Wednesday’s CPI release.
EUR
managed a modest recovery on Thursday, closing in the low 1.12s after Wednesday’s drop, but the bounce owed more to Trump’s signal that any strikes on Iran would be delayed until after the midterms rather than anything eurozone-specific. As such, we would be cautious of chasing further euro strength from here, with French fiscal concerns largely unmitigated. There is no significant eurozone data today; Schnabel at 14:30 BST and Cipollone are the only scheduled catalysts, so the pair will take its cue from Canadian jobs and Michigan sentiment. We continue to see 1.11 as the next downside marker and expect rallies to run out of steam into 1.125.
GBP
Sterling was little changed yesterday, with stuck in the low 1.32s, though an increased focus on fiscal credibility was, we think, notable. Governor Bailey, speaking in Istanbul, took the unusual step of saying credible, stability-focused fiscal commitments are needed “more than ever”. That chimes with our own thoughts, though we suspect the Chancellor will struggle to avoid the mistake of predecessors, delivering the exact opposite result. That keeps us bearish on sterling into month end, while more immediately, there is no UK data today, so cable will trade off US sentiment data and the broader dollar.
CAD
The loonie was the best-performing G10 currency on Thursday, with retreating from the 1.43 handle to the low 1.42s. We had argued there was little scope for a sustained break below 1.42 this week, and that call is now being tested ahead of September’s Labour Force Survey at 13:30 BST. Consensus looks for a modest rebound of around +10k after August’s -42k, with unemployment edging up to 6.5%. Our bias remains for a soft print, which should rule out a Bank of Canada hike on October 28th. If correct, that should push USDCAD back toward 1.43 ahead of the weekend.
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