CAD: Fiscal concerns
It has been a week since the Canadian government released its federal budget, and Fitch Ratings has warned that the proposals reveal a significant erosion of federal finances, weakening the nation’s credit profile. The concern is driven by an expanded federal deficit forecast, now expected to reach CAD 78.3 billion (2.5% of GDP) by FY 2025–26. This figure is substantially higher than both the median for ‘AA’ rated peers and Canada’s own pre-pandemic levels. Persistent spending is projected to push general government gross debt sharply higher, with forecasts suggesting it will reach 98.5% of GDP by 2027, nearly double the ‘AA’ median.
Although the budget attempts to shift focus toward capital expenditures in areas such as housing and infrastructure, it introduces only modest spending cuts. Fitch’s most critical observation is its skepticism regarding the government’s new fiscal rules, which pledge a balanced operating budget by FY 2028–29. The agency emphasizes that these rules are non-binding and highlights the government’s “track record of upward deficit revisions,” noting that previous fiscal guideposts have often been disregarded. This history, Fitch argues, places Canada’s finances at a “high risk of further deterioration,” rendering the new commitments largely unreliable.
In currency markets, the Canadian Dollar has recently benefited from a weaker U.S. Dollar and a positive October jobs report. While the report showed an increase in employment largely concentrated in part-time positions, the headline was sufficient to provide some relief to the Loonie, which climbed as high as 1.414 before retreating to hover around 1.40.
Looking ahead, U.S. macro data is expected to play a decisive role. After the Senate deal this weekend, the government seems likely to re-open any day now. Once data releases resume, the influx of information could propel the U.S. Dollar out of its consolidation phase that has persisted since late May. This week there’s little data, US CPI scheduled for this Thursday may not be announced, while the Canadian Dollar is likely to track U.S. Dollar movements closely.
Meanwhile, Goldman Sachs now anticipates a 50,000 decline in October payrolls, whenever the official figures are published. However, there is a significant risk that the data will prove unreliable due to disruptions in the collection period. The recent shutdown has clouded the labor outlook, leaving markets dependent on alternative indicators such as ADP and Challenger reports to gauge direction.
GBP: Rate cut bets rise, hurdles remain
Sterling came under pressure after Tuesday’s disappointing UK labour-market data, with traders swiftly pricing in a higher chance of a December rate cut from the Bank of England (BoE). Overnight indexed swaps now imply over an 80% probability of easing, following a rise in the jobless rate to levels last seen post-pandemic.
But the reaction may be overdone. Labour data has been plagued by low response rates, raising concerns about reliability. BoE policymaker Megan Greene acknowledged “complications with the series,” though she suggested the worst may be behind us. Greene also warned monetary policy may not be meaningfully restrictive. sterling partially erased earlier losses as a result. Markets will look to the BoE’s Chief Economist Huw Pill’s comments later today for further guidance on how the UK central bank is interpreting the data.
Still, soft labour figures alone won’t seal the deal for a December cut. Sterling’s path will also be shaped by upcoming inflation prints and the fiscal stance outlined in Chancellor Rachel Reeves’ autumn budget. Inflation remains the key sticking point for hawks on the Monetary Policy Committee, including Governor Andrew Bailey, who recently warned that one benign CPI reading isn’t enough to justify easing.
With two inflation reports and a major fiscal event still to come before the BoE’s December 18 meeting, GBP is likely to remain sensitive to incoming data and policy signals. Meeting-dated swap pricing may stay volatile, and gilts could face renewed pressure if inflation proves sticky or fiscal risks resurface.
For now, the pound is caught between softer domestic data and lingering inflation concerns. While rate cut expectations have risen, the bar for actual easing potentially remains high. GBP may find support if the BoE pushes back against aggressive market pricing, especially if upcoming data stabilizes. But with so many moving parts, sterling’s short-term direction remains fluid.
MXN: Strong recovery
A strong recovery for the USD/MXN, which failed another breakout attempt above 18.6, a level coinciding with its 50-day SMA. After hitting 18.7 last week, it rallied driven by concerns around the US job market, which weighed on the dollar.
However, the Peso’s gains are also largely due to the return of a risk-on environment. This improved investor appetite, which boosted emerging-market stocks, was sparked by US lawmakers’ progress toward ending the nation’s longest government shutdown.
While domestic macro data, such as September’s industrial production, came in line with expectations, it is this positive global sentiment that has bolstered the Peso. This has pushed the USD/MXN pair back down, trading close to its 2025 low of 18.2.
Japanese yen under pressure
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: November 10-14
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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.
