USD
While an ECB meeting was arguably the major event of note on Thursday, US retail sales were a close second, released at 13:30 BST. To the surprise of many, including ourselves, core sales rose by 0.7% MoM, some distance better than the 0.3% growth anticipated by economists. This was all the truer given the weather-related disruption seen in September. Like many, we had seen downside risks that this could see yesterday’s print land a little soft. Instead, we received yet more evidence that the US economy is doing better than just fine, supporting a further run higher for the dollar.
EUR
Yesterday’s ECB meeting proved surprisingly entertaining for euro traders, in an unusual turn of events. While the decision to cut rates by 25bps matched pre-announcement expectations, Lagarde offered every dovish hint possible, short of explicitly saying that the ECB has now moved to a once-per-meeting pace of cuts. That said, markets were happy to take the not-too-subtle hint. Swap pricing now implies a series of consecutive rate cuts through to June 2025, in line with our prior base case. This acceleration in rate cut bets saw the euro trading under pressure, with EURUSD briefly threatening to test the 1.08 level, before rebounding modestly yesterday evening and into this morning.
GBP
As we noted earlier in the week, we thought that sterling’s selloff on the back of Wednesday’s soft September CPI print was overdone. As such. The pound’s subsequent grind higher has not come as a surprise. More interesting, however, was the market reaction to this morning’s retail sales data, which beat expectations. Both headline and core sales figures rose 0.3% MoM, having been expected to fall -0.4% and -0.3% respectively. Sterling jumped 0.3% against both the euro and the dollar post-release, erasing Wednesday’s losses in the process. That said, this is very much in line with our longstanding call for UK growth to beat expectations, supporting a stronger pound over the medium term.
CAD
A blank data calendar and an upcoming BoC decision next week should see loonie traders’ attention today focused on risks that the Governing Council could accelerate the easing pace ahead of their meeting on the October 23rd. We had previously thought that a strong September jobs print would make the optics of such a move unfavourable, despite our view that this was a data fluke rather than signs of a more sustained uptick in the labour market. That said, the subsequent weak September CPI, combined with an acceleration in market easing bets and a more general pickup in dovish sentiment around the decision, suggests to us that a 50bp cut is now the most likely outcome. With this in mind, we see building upside risks for USDCAD, which retraced 0.3% higher yesterday. We think more weakness should be in store for next week too, with 1.38 still in range for the pair.
