Currency Outlook: Key Takeaways (august 31, 2023)
Here’s a breakdown of the currency outlook based on the provided text:
Overall Theme: US data, especially tomorrow’s payrolls report, is the dominant driver for currency movements. Soft US data would reinforce a dovish (easing) monetary policy narrative.
EUR (Euro):
Current Situation: recovered slightly due to dollar weakness, but driven by external factors, not Eurozone strength.
Key Factors: Lingering fiscal concerns in France & Italy keep bond yields high. Disinflation is largely complete, suggesting the ECB is done cutting rates. Outlook: Will likely follow US data and risk sentiment. Expect little movement today.
GBP (British Pound):
Current Situation: Modest recovery after a significant fall, but still facing headwinds.
Key Factors: High gilt yields reflect fiscal concerns. boe may pivot to a more dovish stance if the Autumn budget is disappointing.
Outlook: Rallies are expected to fade. expect GBP to underperform against the Euro. DMP survey expected to show declining inflation expectations.
CAD (Canadian Dollar):
Current Situation: range-bound, despite falling oil prices and rising global yields.
Key Factors: Weak labor productivity data confirms economic struggles. BoC expected to hold rates this month, with a potential cut in October.
* Outlook: USDCAD will be driven by US data. Strong US jobs print could push the pair higher; weak data could lead to a decline. Focus on US ADP, jobless claims, and ISM services data today.
In essence: The market is waiting for the US payrolls report tomorrow. A weak report will likely benefit the EUR and CAD,while a strong report could strengthen the USD against all three currencies. The GBP remains particularly vulnerable due to UK-specific economic and fiscal concerns.
