A Volatile Week Looms With U.S. Election and Rate Decisions in the UK and U.S.
GBP
GBP/USD has to 1.2960 (interbank), while GBP/EUR is down slightly at 1.1894 (interbank).
The Pound initially weakened as UK bond yields rose sharply following the government’s announcement of increased borrowing, higher taxes, and greater expenditure, raising investor concerns over the sustainability of public finances and growth outlook.
This week, the BoE is expected to lower its interest rate by 0.25%, bringing it to 4.75% on Thursday. This would mark the second rate cut this year, after September’s drop in headline inflation from 2.2% to 1.7%.
However, given the recent budget, which includes substantial tax hikes, the BoE may adopt a cautious tone to mitigate any inflationary pressures.
No significant events are scheduled for today
EUR
EUR/USD has risen to 1.0895 (interbank) in today’s session.
The Euro has partially recovered from last week’s decline amid a quiet week for European data releases.
This morning, Eurozone manufacturing showed signs of stabilisation in October; although the sector continued to contract for a 28th month, it did so at a slower rate. HCOB's final eurozone manufacturing PMI, compiled by S&P Global, climbed to 46.0 in October, surpassing the preliminary estimate of 45.9, but remains below the 50-point mark that separates growth from contraction.
Moreover, in Germany, the manufacturing PMI rose to 43.0, its highest since July, though still in contraction territory.
Attention now shifts to Wednesday’s services PMI releases, where growth is expected across most countries except France, where Olympic-linked activity is slowing.
Today’s Events (GMT):
09:00 - German Manufacturing PMI (Oct) – Actual: 43.0 vs Forecast: 42.6
09:00 - Manufacturing PMI (Oct) – Actual: 46.0 vs Forecast: 45.9
13:30 - ECB's Elderson Speaks
15:15 - ECB McCaul Speaks
USD
The Dollar Index, measuring the U.S. dollar against a basket of six major currencies, has eased by 0.2% to 103.68.
The dollar retreated on Monday as markets prepare for a critical week with the U.S. presidential election and an anticipated rate cut by the Fed, each with major implications for bond yields.
The election remains too close to call, with polls indicating a tight race between Trump and Harris. A Trump win could bolster the dollar due to policies on immigration, tax cuts, and tariffs, potentially driving up inflation and bond yields. Conversely, a Harris victory might lead to a gentler unwinding, possibly softening the dollar.
Additionally, the Fed is set to announce its latest rate decision post-election, expected to cut rates by 0.25% despite last Friday’s weaker-than-expected employment report. A relatively firm Fed could underpin a stronger dollar and provide support for U.S. equity markets.
Today’s Events (GMT):
15:00 - Factory Orders (Sep) Forecast: -0.4%
CAD
USD/CAD remains steady at 1.3917 (interbank).
The Canadian dollar weakened by approximately 3% in October, marking its largest monthly decline since September 2022, reaching a near three-month low against the U.S. dollar last Thursday.
This week, the BoC will release the summary of discussions from its recent interest rate decision on Tuesday, and Senior Deputy Governor Carolyn Rogers will deliver a speech in Toronto on Wednesday.
The central bank recently cut its key rate by 50 basis points to 3.75%.
Canada will also release October’s labour force survey on Friday, following September’s addition of 47,000 jobs and a drop in the unemployment rate to 6.5%.
Oil prices have gained, with OPEC+ delaying an output increase planned for December, citing weakened demand. Brent crude has climbed around 1.5% to $74.84 per barrel, while West Texas Intermediate crude (WTI) is up to $71.28 per barrel.
No significant events are scheduled for today.
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