November 19, 2024

“The dollar has ceded some ground so far this week as the FX market experiences some consolidation, but it remains close to the one-year highs seen last Thursday. UK inflation will be critical for the pound first thing tomorrow morning, and investors are eagerly anticipating Trump’s choice to head his economic policy.”

Sam Cornford – Head of Trading

USD

The peak of the post-election volatility appears to finally be behind us now, and the dollar has settled into some range-bound trading as markets look to Trump’s Treasury Secretary pick and Friday’s PMIs. Trump is said to be conducting interviews through the week before he announces his candidate, and the range of options appears to have broadened significantly over the weekend, with ex-Fed Governor Kevin Warsh now looking like a front-runner and Apollo CEO Marc Rowan also joining Howard Lutnick and Scott Bessent as possible picks. The key for the dollar is whether Trump opts simply for a loyalist that will wholeheartedly pursue his tariff agenda, which would be good for Treasury yields and the dollar, or for someone more balanced and cautious about jumping hard into protectionism or debt-fuelled tax cuts. The diary is quiet today beyond some housing data and some commentary from the Fed’s Schmid, but there is a key CPI report from Canada that may well be the decider between a 25bp or a 50bp rate cut at the December meeting – markets are leaning towards the former at present.

GBP

Sterling has clawed back some of its losses against the dollar after hitting a six-month low late last week. The focus for the next 24 hours is squarely on the Bank of England rate path, with Bailey, Lombardelli, and Taylor all set to speak at the Monetary Policy Report hearings in parliament this morning. The market is pricing a minimal chance (15%) that a third cut comes at the December meeting, and that’s largely because services inflation – the BoE’s main yardstick for medium-term inflationary momentum – is still only expected to be a touch below 5% in tomorrow’s CPI report, despite the headline figure being likely to come in near 2%. To make things more complicated, policymakers have taken a particular interest in the trajectory less volatile, or ‘core’, components of the services figure.

EUR

The euro gained through a 0.6% correction yesterday but is on the backfoot already this morning. Until we get a fresh catalyst over the next few days, EUR/USD looks to be settled into a new 1.05-1.06 range. ECB speakers gave some mixed messaging, with de Guindos emphasising the idea that the risks have firmly shifted from inflation to growth and Stournaras calling a December cut a ‘done deal’, while Nagel warned that geoeconomic fragmentation could drive a regime of higher and more volatile inflation, potentially constraining the ability to cut rates. The likes of Panetta and Muller also speak today, and we get a final reading of the October CPI figure.

Markets

A cooling in volatility and a rebound in risk appetite lifted global stock indices yesterday after a choppy week last week. The US’ tech-heavy Nasdaq and the UK’s FTSE 100 were the biggest winners of the day, rising 0.7% and 0.6% respectively.

Main Economic Events (All Times CET)

11:00am: Eurozone Final CPI
11:00am: Bank of England Monetary Policy Report Hearings
2:30pm: Canadian CPI
2:30pm: US Housing Starts

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