October 21, 2024

“There are numerous themes steering FX this month. The key data points this week are the PMI surveys, where the US’ growth advantage is expected to continue, while markets will also be closely watching the IMF meetings, the Middle East, and the US election polls.”

Tim Hallinan – Trading Director

USD

The US dollar gained for the third week in a row last week, driven higher by both a widening yield advantage and some market positioning for a Trump election win in two weeks’ time. October’s renewed US economic exceptionalism remains intact and is keeping US yields supported, with last Thursday’s retail sales performing well above expectations, while yields elsewhere continue to inch lower as disinflation advances more quickly than expected in Europe.  It is virtually impossible to disentangle the individual effects of Trump hedging and moves in the rates differential in the dollar’s strengthening, but it looks relatively clear that it is some combination of the two keeping the greenback well supported.

This week’s headlines will be dominated by the PMIs, the IMF meetings, the BRICS summit, and the Middle East. Thursday’s purchasing manager surveys for the US, UK, and eurozone will help to steer rate cut expectations for the final two months of the year, particularly for the ECB, which seems to be primarily concerned with preventing a deeper slowdown. The IMF meetings bring a raft of central bank speakers, and the BRICS summit typically puts the spotlight on geopolitics and the potential for de-dollarisation of global trade.

GBP

Still reeling from Bailey’s suggestion that positive inflation data could lead to a ‘more aggressive’ approach to rate cuts, sterling faces three speeches from the BoE boss this week, beginning one tomorrow afternoon. We will be keen to see if he clarifies and tones down his comments from the Guardian interview a couple of weeks ago, or whether last week’s downside inflation surprise has increased his confidence in being able to ease policy over the next few months. Thursday’s economic activity surveys should see the UK economy outperform the eurozone once again and keep the BoE focused on inflation.

EUR

The euro continues to face a tough macro environment, as perceptions around the US economy improve while the eurozone data prints ever weaker. The PMIs have become perhaps the most important data point for the ECB now and Thursday’s October report could increase bets on the central bank upping the pace even further, given that a contractionary result in September appeared to be the deciding factor prompting a switch to back-to-back rate cuts. Right now, the market is pricing a 50bp move in December at around a 50% probability. Central bank speakers pack the diary this week and Lagarde speaks several times, although views from other Governing Council members are likely to garner more attention, particularly after a Reuters sources story suggested that some governors had discussed dropping the pledge to keep policy restrictive at last week’s meeting.

Markets

US stocks powered through to a sixth consecutive week of gains as the ‘no landing’ scenario gains traction, where the Federal Reserve successfully tackles inflation and cuts rates without any material economic damage. Q3 earnings season kicks into high gear this week with Tesla, Coca-Cola, Barclays, IBM, and Boeing among the major companies releasing results. Gold is surging to record highs as investors seek a safe haven ahead of some overlapping uncertainties in Q4 surrounding central bank cuts, the US election, and geopolitical tensions.

Main Economic Events (All Times CET)

4:00pm: US Leading Index
7:00pm: Fed’s Kashkari speaks

To learn more about Ballinger Group, please visit our website or our LinkedIn page.