Global Themes

The dollar was in better spirits Friday as better news on the U.S. economy the previous day suggested there was still a chance the Federal Reserve could boost interest rates in the months ahead. The buck healed most of the wounds that had taken it this week to seven-week lows against the euro and three-month lows against its Canadian counterpart. Markets of late have been more cold than hot on prospects for the Fed to hike rates before year-end. Now they appear lukewarm after data Thursday showed higher underlying inflation and the healthiest jobs claims in decades. The dollar has time on its side with lots of data for the Fed to peruse before it renders its final decision of the year in mid-December. Virtually no one expects the Fed to lift rates when it next meets in less than two weeks. U.S. data today on factory output and consumer sentiment will help shape how the dollar rounds out its topsy-turvy week.

EUR

The ECB’s dovish chirping pulled the euro off late August peaks against the dollar. A central bank official this week voiced strong support for action to help keep global risks at bay. The bank meets on Oct. 22. Few expect stronger stimulus next week but any playing up of risks to growth from low inflation, which was confirmed at -0.1 percent in September, the first reading in the red since the first quarter, would be taken as a signal of action to come and weigh on the euro.

GBP

Sterling was below three-week highs against the dollar but in line for its third win in as many weeks against its U.S. counterpart. The pound found support in news of M&A activity in the adult beverage industry which fetched a price tag of £69 billion. News that U.K. unemployment improved to 5.4 percent, the lowest in seven years, helped take the sting out of Britain’s return to subzero inflation, the lowest on record.

AUD

Underscoring how the Aussie dollar’s underlying bias remains brittle, it fell from mid-August highs hit earlier in the week, and was on track for a weekly decline. Stronger doubts earlier in the week in a Fed rate hike this year amounted to a tail wind for the Aussie. However, interest rates Down Under may have yet to hit bottom, particularly with the world economy in a heightened state of uncertainty.

CAD

The loonie fell Friday as many chose to cash out gains after its rise to three-month highs Thursday. Caution ahead of Canada’s Election Day Monday also contributed to the loonie’s cooler tone. The latest polls suggest a dead heat race for premier between the incumbent Conservatives, led by Stephen Harper, and Liberal challenger Justin Trudeau. The coming week will be huge for Canada, including the Bank of Canada Wednesday, retail sales Thursday, and inflation on Friday.

USD

Dollar sentiment is only as good as the last meaningful look at the U.S. economy. Yesterday’s encouraging news on core inflation and weekly jobless claims helped the dollar recover from multiweek lows. A catalyst looms for the dollar in factory data, due at 9:15 a.m. ET, and news 45 minutes after on consumer sentiment. Brighter consumer morale, which is expected, would bode better for spending and growth, and help the case for a rate hike.