Global Themes

The U.S. dollar softened below multiweek highs ahead of a busy week for FX markets. The dollar kept to a range ahead of big central bank meetings in the U.S. and Europe, and lots of data from both sides of the Atlantic. The greenback moderated after 5 days of gains that lifted it to multiweek peaks. It’s no surprise to see the dollar struggle to sustain its run in the wake of mixed U.S. jobs data last week that offered evidence of still subdued inflation. Tepid wage growth kept alive the risk of the Federal Reserve slowing the pace of interest rate rises in 2018. All eyes will be on the Fed Wednesday when it is expected to raise its key rate for the third time this year. While the Fed is all but certain to move this week, its European peers are expected to leave their respective borrowing rates unchanged.

GBP

Sterling softened, succumbing to profit-taking after appreciating in the wake of constructive headlines last week on Brexit. Top focus for the pound this week will be on U.K. data on inflation Tuesday, unemployment Wednesday, and a meeting of the Bank of England on Thursday. If that’s not enough, the pound could take additional cues from an EU Brexit summit on Thursday and Friday.

CAD

Canada’s dollar hovered around the weaker end of its range, though downside proved somewhat limited thanks to firmer oil markets. How USDCAD ends the year could hinge on this week’s Fed announcement. A U.S. rate hike is a near certainty on Wednesday. Still, the road ahead for U.S. monetary policy remains hazy given lackluster inflation growth south of the border. Upside for the Canadian dollar has been undercut by the Bank of Canada’s cautious stance on policy that suggests a lower risk of a rate hike in early 2018.

USD

America’s dollar slipped ahead of an eventful week for all things U.S. The Fed renders a Wednesday policy decision which is the same day U.S. consumer prices are forecast to edge higher. U.S. retail sales are expected to rise on Thursday. To excite dollar bulls, who have largely gone into seclusion this year, the U.S. economy would need to produce bullish data, while the Fed would need to forecast a trio of rate hikes for next year, a scenario that seems a bit optimistic given the absence of meaningful inflation.

EUR

The euro firmed ahead of policy meetings this week by the Fed and ECB. While the Fed is all but certain to raise its key rate, the ECB is not expected to do anything after announcing at its last meeting that it would shift to a slower pace of stimulus starting in January. The euro is likely to take its cues from the tone of policymakers’ statement. An upbeat message and outlook from the ECB would tend to support the euro and bolster prospects for the ECB to wind down a key stimulus program late next year.

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