USD: Cautious Powell collides with growth resilience
The US dollar index firmed after Fed Chair Jerome Powell struck a cautious tone on further easing, stressing that the rate‑cut path remains uncertain as policymakers balance inflation risks against a softening labor market. Meanwhile, new Fed Governor Stephen Miran, who favored a deeper 50 bp cut last week, warned that underestimating policy tightness could endanger jobs without bolder action.
On the macro front, US PMIs undershot expectations but only modestly. The composite index slipped from 54.6 to 53.6 (vs. 54 expected), with both employment (51.7) and new orders (53.1) still comfortably above 50. Input costs rose while output prices eased, hinting at margin pressure, but the data were not weak enough to shift expectations or market prices materially. In fact, following Powell’s comments, markets are no longer fully pricing in two more rate cuts from the Fed by year-end, hence the dollar’s rebound.
Indeed, it could be argued that the dollar narrative is shifting from a “rate‑cut casualty” to a relative growth story, echoing dynamics from President Trump’s first term. After a historic H2 decline for the USD, the latest slide was largely a terminal‑rate repricing, with expectations consolidating near 3%. However, although growth has slowed from post‑pandemic peaks, tariff volatility has eased, financial conditions remain loose, and fiscal support is building via the “One Big Beautiful Bill.” This could result in better US growth outcomes in 2026 versus this year.
If this is the case, the dollar could be nearing a bottom, with risks tilting to the upside as growth resilience challenges the market’s downbeat view. If the recovery mirrors Trump’s first term, dollar strength could extend, though it’s reasonable to expect the US currency to become increasingly sensitive to macroeconomic developments and Fed expectations. Moreover, in the very near term lower funding costs could weigh on the buck through hedging activity – especially as seasonal headwinds build into year-end too.
EUR: EUR/USD floats on Fed uncertainty
EUR/USD treaded water yesterday, hovering just south of the $1.18 level. We maintain a moderate bias for $1.18 to settle as new medium-term support, but that would require a more unified signal from the Fed on its willingness to ease. For now, the overall tone remains hawkish – despite the usual doves (see Waller). In the short term, while a breach of $1.18 is possible, the euro may struggle to hold firmly above it.
On the data front, PMIs painted a mixed picture. September’s provisional manufacturing reading came in at 49.5, undershooting forecasts of 50.7. However, strength in services more than offset the weakness, lifting the composite print to 51.2 from 51.0. While the data keeps the euro supported for now, it underscores a fragile outlook for the bloc’s manufacturing sector – particularly vulnerable in a tariff-heavy global environment that continues to pressure export-driven economies like the EU.
The key risk event for the euro this week is U.S. PCE (Friday). A below-consensus print may allow the euro to explore the $1.18 zone, albeit briefly, given the Fed’s reiterated cautious and fractured stance this week.
CAD: Housing continues struggling
The Canadian Dollar continued to drift higher, targeting 1.389, the highest level this month, after Governor Tiff Macklem emphasized the urgent need for structural reforms to secure Canada’s long-term economic prosperity amid the U.S. trade war. Meanwhile, Fed Chairman Jerome Powell reaffirmed a data-dependent approach to gradual monetary policy normalization. The U.S. Dollar has rebounded, gaining against all major currencies and leaving the Loonie among the week’s worst performers.
On the macro front, according to Statistics Canada, the New Housing Price Index (NHPI) for August 2025 highlights a clear and sustained downturn in the Canadian new housing market on a year-over-year basis. The -1.7% year-over-year decline in the NHPI indicates that, on average, the price of new homes was lower in August 2025 than in the same month a year earlier. This marks a significant shift from the rapid price appreciation seen in previous years and confirms that the market is in a period of correction. While the national average signals a price decline, it is important to note that this trend is largely driven by a slowdown in major markets like Ontario and British Columbia, which are experiencing considerable price drops.
This market-wide correction is part of a broader trend where supply is catching up to, and in some cases exceeding, demand. This has empowered buyers with greater negotiating leverage, which is reflected in falling prices and increased builder incentives. The year-over-year decline in the NHPI stands in contrast to the persistent positive growth seen in certain regions, particularly in the Prairies and Atlantic Canada, which continue to show strength. This divergence underscores the non-uniform nature of the Canadian housing market, where regional economic factors and population trends lead to distinct local market conditions. The overall trend, however, points to a more balanced market, moving away from the overheated conditions of the past.
MXN: Domestic and trade resilience
According to official data from Mexico’s National Institute of Statistics and Geography (INEGI), the country’s economy has demonstrated notable resilience, particularly in its trade sector, despite global uncertainties. This resilience is further supported by the latest retail sales report, which continued a trend of moderate growth in July 2025, increasing by a solid 2.4% year-over-year. While overall economic activity, as measured by the Global Indicator of Economic Activity (IGAE), showed a 1.2% contraction year-over-year, driven by sharp decreases in the primary and secondary sectors, the resilience of the tertiary (services) sector, which posted a modest 0.4% increase, helped to cushion the overall decline and speaks to the resilience of domestic demand and consumption.
Mexico’s export sector, in particular, has remained strong, benefiting significantly from its integration with the North American market under the USMCA trade agreement. This framework, along with the exemption of certain products and US content rules, has helped Mexico maintain its competitive edge even as other countries faced trade barriers. The primary vulnerability for the Mexican peso (MXN) is now less about tariffs and trade uncertainty and more about the health of the US economic cycle. The currency’s strength will likely be influenced by the ongoing resilience of the US consumer, as well as risks stemming from a potentially weaker US labor market, which could in turn lead to softer remittances and impact Mexico’s financial stability.
CAD continues underperforming against majors
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: September 22-26
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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.
