Whether it be US data surprising on the upside, the US administration showing no concern at all with the strong dollar, or new chapters in the energy war in Europe, it looks like all systems are go for the dollar rally. Trying to pick a dollar top in the current climate is an exercise in futility. As far as Washington is concerned the strong dollar is someone else's problem - an advisor to President Biden said overnight that we were not headed towards another Plaza accord - the 1985 agreement to reverse dollar strength. We doubt second-tier US data today, nor Fed speakers do much damage to the dollar.
The CAD is weaker, but it is holding up relatively well against the USD amid sharper G10/commodity FX losses elsewhere. Domestic data seems to be slowing with both a cooling in retail sales and GDP activity. The slowing economy is unlikely to dissuade the BoC from tightening interest rates again next month, but it does mean the hike should gear down to a 50bps clip. As usual though, it will be the risk backdrop, not domestic fundamentals, that drive the CAD. Observe the USD/CAD trends.
The strong dollar environment and the deteriorating geopolitical situation in Europe have sent EUR/USD close to 0.9500. Traditional drivers of the EUR/USD such as two-year swap differentials and terms of trade are having no say in EUR/USD pricing right now. However, EUR/USD, at 0.9500, would be near the lower of a bearish channel that has contained this year's orderly descent in the dollar - so perhaps some consolidation may be due above 0.9500.
Comments yesterday from Bank of England (BoE) Chief Economist Huw Pill were consistent with Monday's statement that the BoE would respond to the mayhem in UK asset markets at their regular monetary policy meeting on 3 November. This disappointed the community looking for emergency rate hikes. Instead, the market seems to be settling on a view of a 'significant' BoE rate hike in the order of 150bp on 3 November. This leaves GBP/USD at the mercy of the strong dollar and a bias back towards 1.05 this week.