USD
A post-CPI dollar surge proved short-lived yesterday. Granted, September inflation was hotter than expected, with core up 0.3% MoM for a second month, taking annual core price growth to 2.6% YoY, and headline to 3.7% as fuel costs jumped again. But despite this, odds of an October hike remain subdued, having slipped back from north of 50% shortly after the data landed to around 28% this morning, only slightly above pre-release levels. Arguably, pushback from FOMC speakers helped to keep yields contained, but these moves also seem to have wrong-footed markets, with a sharp equity selloff also driving haven demand for Treasuries, leaving the back around 102.0 this morning. Today brings PPI and retail sales at 13:30 BST, though we suspect Chair Warsh’s speech in Bangkok overnight will be the main event to watch for, given the market focus on US rates. Assuming no concrete guidance, we continue to think dollar dips stay shallow ahead of the October FOMC meeting.
EUR
slid almost 1% on Wednesday, its weakest since May 2025, before a sharp overnight recovery back above 1.12 as Treasury yields retraced. The 1.11 level we flagged as the key downside marker held, but the bounce reflects US factors rather than any improvement at home, with comments from ECB President Lagarde the most notable development, observing that the ECB is not yet seeing second-round effects but “cannot wait until they are in full view”. That keeps a hawkish ECB in play, despite our own scepticism. On France, Lagarde pointedly said the solution lies in domestic fiscal policy; remain near 140bp, and the first budget vote on 20 October is the next hurdle. Today’s calendar is thin, so US PPI and retail sales will set the tone. A hold above 1.12 keeps the recovery alive, but an upside surprise in US data would quickly reopen the 1.11s.
GBP
Sterling was among Wednesday’s worst-performing majors, losing ground to both the dollar and the euro. We thought BoE chief economist Huw Pill’s comment that he is “a bit sceptical” of the four hikes priced over the next year was noteworthy, especially coming from arguably the MPC’s most hawkish member. That said, the dollar led price action through much of the day as markets digested US CPI, while this morning’s August GDP print has helped sterling at the margin, with UK growth up 0.1% MoM against expectations of a 0.1% contraction. Further comments from Pill added in the past few hours, suggesting that a hike should not be read as the start of a series, reinforced yesterday’s remarks. With above 5.4% and the 28 October Budget less than two weeks away, our bearish sterling bias into month-end stands.
CAD
The loonie’s Wednesday gains were reversed and then some after US CPI, with climbing to tag 1.43, before easing back to the low 1.42s overnight as Treasury yields fell. continues to provide a cushion, while Governor Macklem’s Bangkok fireside chat was not published and produced no market-moving headlines, leaving our read on the Bank of Canada unchanged. We expect a hold at 2.25% on October 28th, and think the roughly one-in-four hike probability still priced should fade once Monday’s September CPI lands, particularly after two consecutive employment declines. Senior Deputy Governor Rogers speaks at 10:00 BST, but US PPI and retail sales at 13:30 BST are the main events today. Near term, we see USDCAD consolidating around current levels, with our medium-term bias still toward 1.43 on dovish BoC expectations.
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