FX Week ahead: Third presidential debate, ECB and BoC meetings

Oct 17, 9:05 am
Debates

The US dollar will be taking a backseat for the most part of the week with the ECB and Bank of Canada monetary policy meetings on tap. In the US, the third and final presidential debate is due on October 20th with key issues such as economy being the focus for the markets. The week will also reveal how US consumer prices fared in the month of September.

Third Presidential Debate

The third and final presidential debate will be held on October 19 at 9 pm Eastern Time at the University of Nevada, Las Vegas. With Clinton emerging as the clear winner in the first and second debates, the final presidential debate is likely to garner a lot more attention. The format for the third presidential debate is to be held in six 15-minute time segments covering Debt and entitlements, immigration, economy, Supreme Court, Foreign hot spots and fitness to be president. As with past debates, USDMXN once again jumps to the spotlight.

Busy week for the Canadian dollar

The Bank of Canada will be meeting on Wednesday for its monetary policy meeting. No changes are expected to the interest rate, which currently stands at 0.50%. The week will be busy for the Canadian dollar which will also see the monthly inflation data and retail sales report.

Canada Inflation Rate
Canada Inflation Rate

Earlier in October, BoC’s deputy governor Wilkins was dovish in his speech potentially signaling an easing bias. However, recent economic data has proven to be positive such as the Ivey PMI, building permits, and September jobs report, all of which could see the BoC remain patient by maintaining interest rates are current record lows. Headline inflation is expected to rise 0.20% on a month over month basis while core CPI is forecast to show 0.40% acceleration. Retail sales numbers are also estimated to have rebounded with the median consensus showing a 0.40% increase on the core and 0.50% increase on the headline.

ECB Monetary policy meeting

After last week’s strong currency moves in GBP, the week ahead is relatively quiet with no major economic releases of impact. The focus will, therefore, be back on the Brexit talks which could continue to put the GBP under pressure. After losing near 6% after Friday’s flash crash, the GBP managed to recover, closing above $1.24. The question is whether the GBP can see some more upside in the near term of if prices will simply remain flat during the week.

US Inflation and Housing markets data

The US dollar is also busy this week with Tuesday’s inflation data being the key data point. Headline inflation is forecast to rise 0.30% in September while core CPI is expected to rise 0.20% which is slower than the 0.30% increase seen in August. Housing data is also coming up this week with building permits, housing starts and existing home sales all expected to show a modest improvement from a month ago.

US Inflation Rate, Y/Y
US Inflation Rate, Y/Y

Fed members Tarullo, Fischer and Dudley, will be speaking over the week maintaining the hawkish narrative for a December rate hike.

GBP looks to inflation, jobs, and retail sales

Economic data takes precedence this coming week with inflation expected to rise 0.90% on the headline on a month over month basis. This follows the 0.60% increase from August. Inflation at the factory gate is also expected to rise. The Bank of England said on Friday that it was willing to tolerate inflation overshooting its 2% target for a while and with the current plunge in the sterling’s exchange rate this is likely to be the case.

Wages have been an important factor for the UK jobs, and it has been showing signs of a slowdown, albeit at a moderate pace. For September, the UK’s average weekly earnings index is expected to rise 2.30%, at the same pace of increase seen in August. Claimant count change is also forecast to rise by 3.4k, but the unemployment rate is expected to remain steady at 4.90%.

Increasing uncertainty around the Brexit issue will likely hamper hiring over the coming months especially with reports suggesting that the British government put the referendum to a parliamentary vote.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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