USD: Immune to noise, hungry for data
Section written by: Antonio Ruggiero
The dollar advanced yesterday, with the DXY index moving higher 0.3%, now eyeing the 99 handle. The move was largely driven by a weaker yen – second in command within the DXY basket. Selling pressure intensified across London and New York sessions, after Sanae Takaichi won the parliamentary vote yesterday to become Japan’s prime minister.
Sentiment was further buoyed by optimism surrounding the upcoming meeting between Xi and Trump in South Korea, with the latter declaring, “China and I will have a really fair and really great trade deal together,” while also reiterating his threat to follow through on tariff hikes on Chinese goods “if there isn’t a deal” by the 1 November deadline. Such remarks have helped soothe investor fears in recent days that no deal would be reached.
Another lens on the dollar’s resilience came via gold and silver, which fell 5.3% and 7.1% respectively in a single day – marking one of their sharpest drops in nearly five years. Haven demand for precious metals has cooled somewhat amid an improved Sino-American trade outlook, while a stronger dollar makes them more expensive and even less appealing.
Recent USD price action, however, remains outsized. The lack of fresh data has left the dollar dis-anchored from the Fed’s relatively softer tone compared to its DXY peers. In fact, investors are in desperate need of new data to make sense of the Fed’s recent dovish signals – re-anchoring the dollar either in support of that tone, or in rejection of it.
Overall, recent price action continues to underscore the dollar’s growing numbness to headline noise – be it trade or credit-related tensions. Meanwhile, investors are treating resilient corporate earnings across the S&P 500 as a proxy for broader economic strength. That resilience remains the dollar’s beacon of hope, suggesting its recent gains could evolve into more sustained upside once real economy data returns to the spotlight.
CAD: Odds of a rate cut remain high
Despite a hotter-than-expected inflation print for September, markets are still pricing in a 70% probability to a rate cut by the Bank of Canada (BoC) next week, a striking signal of the complex policy crosscurrents at play. The Canadian dollar strengthened following the CPI release, with USD/CAD dipping to 1.3994. However, it has stayed above 1.40 on renewed USD bid.
While inflation surprised to the upside, the data may not be forceful enough to override the broader case for easing. The odds of a cut remain elevated, highlighting the BoC’s policy dilemma, balancing the need to support a weakening economy against the risk of entrenching elevated inflation expectations.
The September CPI report has undeniably complicated the BoC’s calculus. Headline inflation accelerated to 2.4% year-over-year, up from 1.9% in August, driven largely by a narrower decline in gasoline prices (-4.1% vs. -12.7%) due to base effects, and a sharper increase in grocery prices (+4.0%). Importantly, the rise was broad-based: CPI excluding gasoline climbed to 2.6%, and inflation picked up across all provinces. This outcome stands in stark contrast to the dovish narrative that had been building around softening macro indicators, injecting fresh uncertainty into the case for near-term stimulus.
Adding to the complexity is the persistence of inflationary pressure in key household spending categories. Food purchased from stores posted its fastest price growth since April 2024, while rent inflation accelerated to 4.8% nationally. These dynamics suggest that inflation expectations remain sticky, hovering near the upper end of the BoC’s 1–3% target range, as echoed in recent business outlook surveys. Although the partial rollback of retaliatory tariffs in September may offer some relief in the months ahead, the immediate concern is that a premature rate cut could reinforce inflation inertia and exacerbate margin pressures already reported by firms. The BoC thus finds itself walking a tightrope: macro conditions argue for easing, but the inflation data demand restraint.
On the growth front, however, the rationale for a rate cut remains compelling. GDP growth continues to underwhelm, and labor market data reveal underlying softness despite a headline gain of 60,000 jobs in September, many of them in tariff-sensitive sectors like manufacturing. Yet, over the past three months, Canada has shed a net 46,000 jobs, pointing to a rise in economic slack. This slack typically translates into reduced inflationary pressure over the medium term, reinforcing the case for monetary easing. Still, the BoC may opt for a more cautious, phased approach, delaying action until after the November 4 federal budget and gaining further visibility on U.S. trade policy developments.
In sum, the BoC faces a deeply conflicted backdrop: inflation is proving more persistent than hoped, yet growth signals remain fragile. Markets appear to be betting that the Bank will prioritize economic support, albeit with growing hesitation. The path forward is anything but straightforward.
GBP: Soft prints, softer sterling
Section written by: Antonio Ruggiero
UK inflation fell across the board yesterday, undershooting expectations on both the headline and core fronts. Services inflation – stickier than goods and closely monitored by the Bank of England – held steady, rising by the same pace as in August (4.7% y/y), below the 4.8% forecast. We flagged this potential undershoot in yesterday’s note. Core inflation, which strips out volatile food and energy prices, also came in below what economists had predicted 3.5% vs. 3.7%. Meanwhile, food inflation – a point of concern given its persistent stickiness – slowed for the first time since March, easing from 5.3% to 4.9%.
With expectations tilted toward a stickier print, the contrarian nature of the data triggered a sharper bearish reaction in GBP price action – like a coiled spring unwinding. Sterling is currently trading 0.3% lower against the dollar, showing broad-based weakness across the G10 space as well. The move was amplified by persistent softness in the labour market, helping unify voices around a more cohesive – and softening – BoE policy path, which now puts a December rate cut back on the table.
Sterling bulls have had little to justify a break above the 21-day moving average, which continues to cap GBP/USD’s descent from mid-September highs of 1.3726. The pair is now down ~2% from those levels, and recent data only reinforces the bearish momentum.
Oil oversold, 20% down year-to-date
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Calendar: October 20-24
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
