The dollar consolidated yesterday with the main development in global markets was the decision by the US – as part of a deal with China, UK, Japan, India and South Korea – to release 50 million barrels from its crude reserves in an attempt to ease energy prices. Still, the market was likely pricing in a bigger intervention and given the risk of an OPEC+ retaliation, oil prices ultimately rallied.
Today, all eyes will be on the minutes of the November FOMC meeting, the last key market event before the Thanksgiving break. Naturally, the minutes will be somewhat outdated as the meeting took place before the release of the October inflation report. Still, it will be interesting to gauge how much divergence of views there was within committee members. As above-6% inflation has now clearly provided a strong argument in favour of faster tapering and earlier tightening.
On the data side, we should see a modest upward revision to 3Q GDP data (likely to 2.1% or 2.2% quarter-on-quarter), while October’s PCE, personal income and durable goods orders are all likely to improve from the month before. The current environment continues to suggest a stronger greenback.
The CAD Continues to struggle against the tide of a generally stronger USD and weak risk appetite. Lower crude oil prices are a clear headwind for the CAD and short-term spreads are narrowing as US interest rates firm. Although these factors have turned somewhat less supportive for the CAD in the past couple of weeks, we view the CAD’s slippage as somewhat overstated. A calmer risk backdrop and steadier commodity prices are needed for the CAD to improve. Look for the loonie to weaken over the next few days as we enter the U.S. Thanksgiving holiday.
Yesterday’s PMIs were a positive surprise for quite choppy eurozone sentiment, although they failed to turn the tide for EUR/USD which remains capped due to the greenback’s momentum and concerns about rising cases and new restrictions in the eurozone.
Today, the Ifo survey out of Germany will be another important gauge of whether Covid-related concerns have started to hit business sentiment. We think the impact on the EUR should be either neutral (if above or around consensus) or negative (if a big miss), although further developments on possible restrictions in Europe should remain a more important driver. EUR/USD may extend losses to below 1.1200 after the FOMC minutes.
Yesterday, good PMIs in the UK seemed to support the case for a December Bank of England hike. Today, the data calendar is quite empty in the UK, with only some focus on a speech by MPC member Silvana Tenreyro, normally a dovish voice. The GBP has remained in a narrow trading range over the last few weeks; a decisive move higher may signal investors are starting to price in diverging contagion/growth paths for the UK and the eurozone, something similar to what we saw at the beginning of the vaccination programme in 1Q21.