USD
The dollar drifted on Wednesday, as we had anticipated given the empty US data calendar. The tone has turned decisively more defensive overnight though, as a selloff in Asian equities helps drive FX price action this morning. So far, the yen has been the big beneficiary, with testing 157. The dollar, meanwhile, has struggled, failing to pick up its usual haven demand. This, we think, can be explained by the outsized exposure of US equities to AI, which has helped drive dollar inflows over recent months. A reversal of that dynamic is now pressuring the buck, upending the usual logic that risk-off markets should be greenback supportive. Even so, broad dollar downside remains modest. Jobless claims at 13:30 BST are the only release of note today, and with the FOMC in blackout, we expect dollar dips to stay limited.
EUR
The euro once again lagged the G10 on Wednesday, and once again, the culprit remains France, where the 10-year OAT yield rose above 5% for the first time since 2002, and the spread over Bunds widened to around 160bps, the widest since 2012. Against sterling, the single currency remains pinned close to 17-month lows around 0.84. Overnight, has edged up as the yen-led dollar softness outweighs the risk-off tone, but we are not inclined to chase it. Eurozone consumer confidence at 15:00 BST is the only scheduled release, while Friday’s flash PMIs and Moody’s review of France’s Aa3 rating, due after the European close, loom large, with troops already being deployed ahead of Saturday’s protests. We continue to prefer fading euro rallies.
GBP
Sterling was among the better performing majors on Wednesday after September CPI printed hotter than expected at 3.5% against a 3.4% consensus, with services inflation accelerating to 3.7% and core ticking up to 2.8%. Cable gained around 0.1% to close just below 1.34, building on Tuesday’s advance, while held near the bottom of its recent range. As we argued yesterday, the data seals a 25bp hike to 4.00% on November 5th, which markets now treat as a done deal, but with swaps pricing more than 100bps of tightening over the next twelve months, we think the curve has got ahead of itself. Indeed, we think this helped to contain sterling upside yesterday, suggesting that near-term risks for the pound should skew to the downside as Budget speculation builds in the coming days.
CAD
The loonie consolidated on Wednesday after its strong start to the week, with closing a touch lower as oil whipsawed on conflicting US-Iran headlines before ending near unchanged. Swaps continue to price in an 85% chance of a hike to 2.50% at next Wednesday’s Bank of Canada decision, supporting the currency alongside Monday’s referendum result in Alberta. We remain unconvinced, as we set out earlier this week. Headline inflation undershot consensus at 3.1%, the average of the Bank’s preferred core measures fell to a fresh 2026 low, and the economy has shed more than 110k jobs over two months, which to us argues for a hold and an upgraded inflation forecast in the MPR rather than tightening. Today’s calendar is light, with September producer prices at 13:30 BST, while August retail sales on Friday are the last domestic check before the meeting. With back at $110 on the renewed Gulf attacks, the loonie should find some cushion in a risk-off session, but we still see USDCAD drifting back towards 1.43 as hike pricing is pared back.
This content was originally published by our partners at Monex Canada.
