USD
The dollar’s post-midterm slide stalled on Thursday, with the closing marginally higher at 101.6 and little changed overnight. The main story was an AI-led equity rout, with the down 4.4% and the suffering its worst session since April 2025 as the Democratic sweep of Congress raised fears of tighter scrutiny of data centre expansion. That, in turn, dragged Treasury yields a little lower, albeit the greenback held up as risk-off flows offset rallying bonds. Overnight, meanwhile, oil has also rebounded, with back near $100 after further tanker attacks in the Gulf and reports that CENTCOM is preparing for a possible resumption of major combat with Iran. Today’s October payrolls are the key test, with consensus looking for 70k gains, unemployment at 4.2% and earnings up 0.3%. We think risks remain skewed to the upside, which should re-anchor December hike pricing and support the dollar into the weekend.
EUR
As expected, failed to extend gains on Thursday, before slipping back overnight, with Eurozone-specific catalysts thin on the ground. Lagarde said the ECB will have “many indicators” before deciding whether a December hike is necessary and warned against using rates “like a hammer”, a notably more cautious tone than Nagel earlier in the week. That does, however, align with our sense of conditions – we continue to see ECB pricing for 2027 as too aggressive given growth risks from the energy shock. Today brings September German industrial production and eurozone retail sales, neither likely to move the needle. US payrolls will dominate, and we continue to favour fading rallies.
GBP
The Bank of England delivered the 25bp hike to 4.00% that we expected yesterday, but the 8-1 vote was more hawkish than our 7-2 call, with Catherine Mann dissenting in favour of 50bp rather than any members voting to hold. Bailey said the move “should not be seen as the first in an inevitable long sequence of hikes”, though the MPC flagged at least one more increase if the Iran conflict persists and sees inflation peaking near 5% in Q2 2027. December hike odds rose to roughly 50/50 and initially climbed by up to 6bp before the US equity rout reversed much of that. Accordingly, is lower this morning, with little changed. Our base case is now one further hike to 4.25% in December followed by an extended pause, with Bank Rate peaking below swap pricing. With little on the UK calendar today, sterling will trade off US payrolls and risk sentiment. As a high-beta G10 currency, the pound is vulnerable to a further equity slide, while a firm payrolls print should weigh on GBPUSD in any case, a mix that skews sterling risks lower heading into the weekend.
CAD
The loonie’s seven-week high proved short-lived. opened just shy of 1.40 on Thursday before reversing sharply as the US equity sell-off drove risk-off flows, a move that has continued overnight, with the loonie failing to benefit from a 2.5% bounce in Brent. The federal budget, tabled yesterday, projected deficits of 1.8% of GDP this year and next with debt steady near 40% of GDP, and drew little market reaction. Looking ahead, the October labour force survey is due at 13:30 GMT alongside US payrolls, with consensus looking for a modest 15k rebound after September’s 68k fall and unemployment unchanged at 6.5%. We argued yesterday that a soft Canadian print alongside firm US payrolls would be the trigger for a move back above 1.40; that level has already been reached on risk aversion, putting a possible break of 1.41 on the table later today.
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