October 15, 2024

“The dollar has recovered strongly so far in October as investors have pulled back their bets on big rate moves from the Federal Reserve. The focus right now is on the UK, where we have the final inflation report before the Bank of England’s November meeting.”

Tim Hallinan – Trading Director

USD

The dollar index inched up to a two-month high yesterday, supported in part by a cautious speech from the Fed’s Waller. Data was particularly light, but the greenback found support from markets further revising down pricing for extra cuts this year to only 40bps and some disappointment at the lack of concrete stimulus details out of China once again at the weekend. Waller’s assessment of the recent inflation and jobs data bolstered the recent hawkish repricing as it called for ‘more caution’ on cutting rates than was displayed at the September meeting. Another US trend worth noting that could be buoying the dollar at the margin is a switch in the election betting markets, which now favour Trump after being biased towards Harris for the past few months. There is little to shout about on the US calendar today, and the market focus will likely be directed towards some speeches by the Fed’s Daly and Kugler later in the afternoon.

In Canada, look out for CPI inflation this afternoon. Last week’s strong jobs report came after many months of weaker data, and ultimately struggled to dent the market’s conviction in a 50bp rate cut next week, which is currently priced at 53%. Today’s inflation figures will have the final say on that possibility.

GBP

This morning’s labour market report is broadly supportive of gradual Bank of England rate cuts. Vacancies – a key indicator of labour demand – cooled further and ex bonus wage growth fell from 5.1% to 4.9%. While the unemployment rate surprised again with a dip to 4.0%, both the market and the Bank of England know that this is an indicator you have to take with a pinch of salt, owing to the persistent response issues with the Labour Force Survey – the timelier jobs indicators tend to hint at a continued loosening in the labour market. A better balance of supply and demand for workers leads to lower wage growth, which then feeds into lower inflation in the labour-intensive services industries. The report is not a gamechanger, but it is enough not to deter a rate cut next month. Tomorrow morning’s CPI inflation figure, however, is the final report before the November decision and could be the ultimate decider. While the headline CPI figure is expected to fall below the 2% target at 1.9%, it is the services inflation number that will really matter, with policymakers stuck on sustaining 2% inflation in the medium term.

EUR

The euro has had a poor start to the week and is now trading at a two-month low this morning. Some extra downward revisions to the final French inflation figures appear to have had some impact this morning, although a rising dollar had already taken EUR/USD to below the 1.09 level – that’s 2.5% lower than where it started the month. The German ZEW survey is the main event today, where the consensus is looking for a slight improvement in optimism for German institutional investors. The index has dropped considerably over the last six months, from the near-50 level to only 3.6 in September.

Markets

The S&P 500 and the Dow hit further record highs yesterday in some thinner trading, buoyed by tech shares and bank earnings beats last week. Nvidia’s market cap also rose to a high of $3.4tn and is closing in on Apple’s $3.5tn valuation. Citi, Bank of America, and Goldman Sachs all release earnings today. Oil prices have fallen sharply over the past day after Israel’s Netanyahu appeared to confirm that Iranian oil facilities would be safe from a retaliatory strike.

Main Economic Events (All Times CET)

8:00am: UK Wage Growth & Unemployment
11:00am: German ZEW Economic Sentiment
2:30pm: Canada CPI Inflation
5:30pm: Fed’s Daly speaks

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