The dollar remains in corrective mode as investors adjust positions on the latest headlines out of China. China’s zero-Covid policy represents a ‘known unknown’ for the market and one where any significant relaxation could unleash a wall of cash parked on the sidelines in dollars. On the Fed front, fears of over-tightening do not seem to be present in the US currently, money markets are continuing to price the Fed cycle higher and later. For today, the focus will be on the US mid-term results - although the immediate impact on the dollar will be muted ahead of the main event risk this week – October US CPI data on Thursday.
Strong jobs—and wage—data last week suggest that the Bank of Canada still has some work to do in order to dampen price pressures, even with a slowdown in economic growth looming on the horizon. The US dollar continues to remain rangebound similar to yeserday’s trading range of 1.3465-1.3555 in a quiet overnight session. This morning, CAD is a modest under-performer, trading little changed on the USD to start the trading day. Observe the USD/CAD trends.
EUR/USD climbed back above parity yesterday, driven by a softer dollar and relatively upbeat risk sentiment. Today, the eurozone data calendar includes retail sales for the month of September, which are expected to have climbed on a month-on-month basis. Macro factors continue to point at a weaker EUR/USD, and we doubt that with the economic uncertainty in the eurozone ahead of the winter that EUR/USD will easily remain above parity for very much longer.
Soft demand at yesterday’s Bank of England Gilt auction saw Gilts selling off and while also dragging other bond markets lower. The sell-off did not hurt the GBP which seems to be settling down a little. For today, the focus will be on some speeches from BoE members. Surprisingly, the pricing of the BoE cycle has not moved much since the immediate volatility following last Thursday’s Monetary Policy Committee meeting. The FX markets are now wholly focused on the amount of fiscal restraint expected on 17 November. Most continue to expect the GBP/USD to weaken toward the 1.12 region.
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