Key Takeaways
- The US Dollar (USD) is trading near its weekly high within a confined range, with trade headlines and EU/UK PMI data causing minor FX movements.
- US President Donald Trump’s termination of trade talks with Canada led to a brief USD/CAD surge.
- Upcoming US economic data includes September CPI and October PMIs, which are expected to show a slight easing of private sector growth and sticky inflation.
- Despite near-term firmness, the underlying fundamental downtrend for the USD is considered intact.
USD Performance Amidst Trade Tensions
The US Dollar (USD) is currently showing firmness, hovering near its weekly high and remaining within a tight trading range. Recent tariff-related headlines and economic data releases from the European Union and the United Kingdom have contributed to modest volatility in the foreign exchange market.
A notable event occurred yesterday when US President Donald Trump announced the cessation of all trade negotiations with Canada. This decision stemmed from Ontario’s advertising campaign, which was critical of the White House’s tariff policies. In response to this news, USD/CAD experienced a climb, reaching an overnight high of 1.4028, marking a 0.25% increase. Analysts at BBH FX have identified key resistance for the currency pair at 1.4080, which corresponds to the October 14 high.
Upcoming Economic Indicators
Today’s economic calendar features significant US data releases that are expected to influence market movements. At 1:30 pm London time (8:30 am New York time), the US September Consumer Price Index (CPI) will be released. Later, at 2:45 pm London time (9:45 am New York time), the October Purchasing Managers’ Index (PMI) data will take center stage.
💡 While those are the primary focal points, secondary attention will be given to the final October University of Michigan sentiment index, scheduled for 3:00 pm London time (10:00 am New York time). An hour later, the Kansas City Fed service index will also be released.
Projected Economic Trends
Market projections suggest a slight moderation in US private sector growth momentum for October. The composite PMI is anticipated to decrease to 53.5, a four-month low, compared to 53.9 recorded in September. This slowdown is primarily attributed to softer activity within the services sector.
📊 Inflation in the US is expected to remain persistent in September. The headline CPI is forecasted to increase by 0.4% month-over-month, mirroring the August figure. Year-over-year, this would result in a 3.1% rise, up from 2.9% in August. Core CPI is also projected to rise by 0.3% month-over-month, consistent with August’s data, leading to a year-over-year increase of 3.1%, unchanged from the previous month. For comparative context, the Cleveland Fed’s Nowcast model estimates both headline and core CPI to be at 3.0% year-over-year for September.
📌 A metric to closely monitor is the super core services CPI, which excludes housing costs. This indicator is considered a valuable gauge of underlying inflation trends. In August, this measure held steady at 3.2% year-over-year for the second consecutive month, suggesting that progress towards the Federal Reserve’s 2% inflation target is currently stalled.
USD Fundamental Outlook
⚡ Despite the potential for sticky inflation data, the immediate upside risks to prices are not materializing significantly. This scenario offers the Federal Reserve room to potentially implement a second consecutive 25 basis point rate cut next week, shifting the target range to 3.75%-4.00%.
Additionally, concerns exist that restrictive monetary policy could exacerbate the already fragile employment backdrop, potentially leading to further downward adjustments in Fed funds futures. The overarching conclusion from analysts is that the fundamental downtrend for the US Dollar remains intact.
Expert Summary
The US Dollar is maintaining a firm position near recent highs, influenced by trade developments and upcoming economic data. While US CPI and PMI figures are anticipated to indicate stable inflation and a slight slowdown in growth, the broader fundamental outlook suggests the USD’s downtrend persists, despite short-term strength.