Global Themes

China’s GDP for the third quarter unexpectedly beat market expectations last night, allaying fears of a sharp economic slowdown in the world’s second largest economy. China’s economy grew by 6.9 percent in Q3, more than the 6.8 percent analysts had predicted but still the slowest rate of growth since 2009 and below the government’s 7 percent goal. Some had predicted a much sharper decline from 7 percent in Q2 to a figure close to 6.5 percent given the country’s stock market collapse and shock currency intervention back in August.

China’s data will be a welcome relief for currency traders, with last night’s muted FX reaction a sign of that reprieve. Attention now turns to the Bank of England with Governor Carney speaking tomorrow at 10am as the Pound continues to trade close to an 8-month low against the Euro; although, Carney is not scheduled to comment on interest rates but Draghi is. President Mario Draghi may attempt to talk down the Euro’s recent appreciation using Thursday’s all-important ECB interest rate announcement and press conference.

EUR

The European Central Bank could unravel the Euro’s recovery this Thursday if President Mario Draghi gives clearer hints about more monetary stimulus. In September the ECB cut its growth and inflation forecasts and warned that further trouble from China could pave the way for an expansion of its QE program. However, if President Mario Draghi says it’s still too early to make any call on additional stimulus, this would be a Euro-positive outcome. The single currency has gained by 1.5 percent and 2 percent against the US dollar and Sterling respectively over the past 30 days. 

GBP

Bank of England Governor, Mark Carney, will deliver two speeches this week with FX traders unclear on whether he will comment on UK interest rate expectations. Governor Carney speaks first on Tuesday at 10am but the event is focused on the government’s Bank of England Bill. Carney could repeat Friday’s comments from fellow MPC member Kristin Forbes, who said a rate rise in the UK will come “sooner rather than later” and that gloom about the global economy is overdone. Financial markets data however suggests the BOE will not raise rates until mid to late-2016 – a disappointing view that has wiped 4.5 percent off of the Pound’s value against the Euro in two months.

USD

Investors will watch over US data and comments on interest rates in coming days but preparations are likely to start now before next week’s key US announcements. On October 28 the Federal Reserve will make its next interest rate decision before October 30 when the country’s Q3 GDP estimate is due. Over the past 30 days the EUR/USD exchange rate has traded in a price band of 3.5 percent - down by half compared to the 7.2 percent swing in the previous 30-day period. An ECB rate decision this Thursday ahead of next week’s US announcements could potentially ignite more aggressive currency swings.

CAD

The Canadian dollar is hovering close to its best levels in three months against Sterling ahead of Canada’s next interest rate decision on Wednesday. The loonie may rally if the Bank of Canada continues to hold it’s main interest rate unchanged at 0.5 percent. In September the BOC made no change, declaring its previous two rate cuts were still stimulating the economy. The recent stabilization in oil prices is another positive for the BOC while uncertainties across emerging markets is not.