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 jobs, 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. Following the Senate’s deal to end the longest government shutdown in U.S. history, federal operations are set to resume, though only temporarily, with funding secured until January. 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. Meanwhile, FX volatility is expected to stay muted, with the Canadian Dollar closely shadowing the trajectory of the U.S. Dollar.
However, the U.S. administration has confirmed that the October CPI won’t be published, as the reports slated for release were disrupted by the government shutdown, and attempts to catch up risk producing relatively inaccurate data.
There is also a significant risk that the labor market data will prove unreliable due to disruptions in the collection period. Goldman Sachs now anticipates a 50,000 decline in October payrolls, whenever the official figures are published. The recent shutdown has clouded the labor outlook, leaving markets dependent on alternative indicators such as ADP and Challenger reports to gauge direction. The recent data shows labor demand weakness is becoming entrenched, with tariffs and trade disruptions driving a shift from a ‘low-hire, low-fire’ market to one marked by fewer hires and more layoffs.
EUR: Lacking momentum, will the data deliver?
EUR/USD continues to struggle near its 21-day moving average, just below $1.16. Rebounds in recent weeks have repeatedly stalled at this level, pointing to subdued euro demand. In such a range-bound phase, both rallies and pullbacks are likely to remain contained. The end of the US government shutdown may soon unlock key data releases, offering a potential catalyst for renewed directional momentum.
Looking further ahead, growth differentials are likely to remain key drivers of G10 FX in 2026. Unless the expected growth gap between the euro area and the US narrows, the bullish EUR/USD case from 2025 may struggle to gain momentum.
In Europe, fiscal stimulus could support GDP next year, though ongoing political uncertainty in France poses a risk. The US economy, meanwhile, has weathered tariff uncertainty better than expected – helped by AI-driven investment, strong equity markets, and a loose policy mix. The eurozone–US economic surprise index differential has turned positive again, signalling a relative improvement in European data flow. However, the shift remains modest, and further upside surprises from the euro area and more importantly – downside surprises in US data – will likely be needed to sustain euro gains.
Unusually, the Fed is easing later than the ECB. With eurozone rates likely at their trough around 2%. The Fed is expected to cut three times through next year according to current market pricing though. If such policy paths unfold, they support a yield-driven bullish view on EUR/USD, but growth outcomes will need to confirm that narrative.
Positioning adds another layer of complexity. Leveraged funds remain modestly underweight euros, while asset managers’ long positions are stretched – at highs not seen since mid-2023, according to CFTC data (pending updates due to the shutdown). This reflects the bullish structural and cyclical view that gained traction after April 2, but also signals limited room for further upside without a fresh catalyst. Overall, stretched positioning and lingering uncertainty suggest EUR/USD may struggle to extend gains unless growth and policy expectations align more clearly.
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.
GBP: No political shelter for sterling
EUR/GBP has breached 0.88 faster than anticipated, reaching its highest levels in almost three years. Political drama in the UK found fresh ground yesterday. What began with a misguided briefing evolved into explicit acknowledgment of a potential leadership challenge against Prime Minister Keir Starmer, followed by new claims of active plotting allegedly involving Health Secretary Wes Streeting in efforts to dislodge the leader. Streeting dismissed the allegations, calling them “self‑destructive behavior” from anonymous sources.
While replacing a sitting Labour prime minister remains a tall order, the discord has sharpened focus on the government’s ability to address the UK’s economic and financial challenges, with the Autumn Budget looming. The story may have certainly taken on an overly dramatized, almost gossip‑like character, yet it underscores how fiscal pressures are being refracted through a fractured political backdrop. Risk premium has found new fuel, dragging sterling lower – a move unlikely to fade at least before the 26 November budget.
Adding to the political noise, this morning, UK GDP expanded just 0.1% in the three months to September (vs. 0.2% expected), while monthly GDP for September contracted by 0.1%.
Following the past few days’ turmoil, roughly 15% of a quarter‑point cut had remained unpriced – more a reflection of political risk premium weighing on the long end of the curve – but today’s confirmation of weaker growth may cement easing expectations, leaving sterling exposed on both fundamental and sentiment fronts.
EUR/GBP has extended its upside trajectory, with near‑term targets now at 0.8870–0.8900. Support levels remain in view around 0.8770, followed by the 21‑day moving average at 0.8700.
Oil WTI breaks below $60 again
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.
