Focus Shifts to PMI Data and the BoC Rate Decision This Week
GBP
GBP/USD is currently trading at 1.3038 (interbank), while GBP/EUR is at 1.2010 (interbank).
The Pound has pulled back slightly after last week’s rally driven by stronger-than-expected Retail Sales data and a decline in September’s inflation figures (CPI). This has tempered expectations that the BoE will implement rate cuts in its two remaining meetings this year.
With the upcoming budget announcement by Labour, the Health Secretary did not rule out the possibility of extending the freeze on income tax thresholds amidst speculation of potential tax increases in an interview over the weekend.
Potential changes to inheritance tax, fuel duty, stamp duty, and a levy on e-cigarettes are reportedly under consideration, along with a possible rise in employer national insurance contributions, which could generate £9bn to £18bn and pose a challenge to Labour’s election pledge not to raise VAT, income tax, or national insurance.
The week is light on UK data, though the latest PMI figures are due on Thursday.
No significant events are scheduled for today.
EUR
EUR/USD is currently trading at 1.0852 (interbank), after hitting just above 1.0830 on Friday, its lowest level since 5 August.
The euro weakened further against the US dollar last week after the widely expected ECB rate cut, with President Christine Lagarde stating she does not anticipate a recession and expects a soft landing for the economy.
Eurozone inflation for September was revised down to 1.7% year-on-year from the initial estimate of 1.8%, reinforcing the likelihood of a faster ECB rate-cut cycle.
This morning, German producer prices fell more than expected in September, dropping 1.4% year-on-year and 0.5% month-on-month, against forecasts of a 0.2% decrease. This marks the 15th consecutive monthly drop in Germany’s producer price index, which is seen as a key inflation indicator. Later this week, S&P Global will release the latest manufacturing PMI data for key European economies, including Germany and France.
Today’s Events (GMT):
07:00 - German PPI (Sep) – Actual: vs Forecast: -0.2%
USD
The Dollar Index, which tracks the U.S. dollar against a basket of six major currencies, is currently at 103.61. It fell by 0.3% on Friday as risk sentiment improved across markets following China’s announcement of further details regarding its broad stimulus package, although the dollar still logged a 0.55% gain for the week.
Polls are showing rising odds of Donald Trump winning the upcoming U.S. election are bolstering the dollar, as his proposed tariff and tax policies are expected to maintain higher U.S. interest rates and weigh on the currencies of trading partners.
This week is relatively quiet for U.S. economic data, but investors will be watching reports on existing and new home sales, durable goods orders, consumer sentiment, and initial jobless claims.
Market participants will also be paying attention to comments from several regional Fed officials throughout the week.
Today’s Events (GMT):
18:00 - FOMC Member Kashkari Speaks
23:40 - FOMC Member Daly Speaks
CAD
USD/CAD remains stable, trading at 1.3795 (interbank).
Last week, Canada’s annual inflation rate fell to 1.6% in September, increasing expectations that the Bank of Canada (BoC) may announce a larger rate cut of 50 basis points.
The focus now shifts to the BoC’s interest rate decision and updated economic forecasts, which will be released on Wednesday. Having already reduced its key borrowing rate by 75 basis points to 4.25% this year, the BoC is expected to implement its fourth consecutive rate cut this week.
Declining inflationary pressures, weakening labour growth, and slowing household spending have heightened expectations for larger-than-usual rate cuts by the BoC.
Markets will also be watching Canada’s retail sales data for August, which is due to be released on Friday.
Meanwhile, oil prices remain steady, with Brent crude at $73.37 per barrel and West Texas Intermediate at $69.57 per barrel.
No significant events are scheduled for today.
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