Global Themes

The U.S. dollar softened just inside of multimonth peaks against a currency basket ahead of today’s important policy decision by America’s central bank. After six years of near zero interest rate policy, most believe it’s still too soon for the Federal Reserve to boost borrowing rates. Global weakness has shifted growth in the world’s biggest economy into a lower gear. American hiring has slowed markedly in recent months, inflation remains low and despite cheaper prices at the gas pump consumers continue to spend tepidly. The Fed for months has hinted at rates rising before the end of the year. After this week, the Fed has one final meeting this year, in mid-December. How likely the Fed hints at sticking to its conditional rate script will be critical for the dollar. More event risks loom with U.S. third quarter growth due tomorrow followed by a Japanese central bank decision on Friday.

GBP

Sterling’s fall to two-week lows could accelerate if the Fed today keeps a rate hike penciled in before year-end. The pound continued to ride the previous day’s negative catalyst lower when data showed U.K. growth fell short of forecasts in the third quarter, rising 0.5%, reportedly below the Bank of England’s longer run average of 0.6%. The data underscored market opinion that a U.K. rate hike could be about a year away.

AUD

Calling all Aussie buyers: Australia’s dollar tumbled nearly 1% to three-week lows after a sharper than expected slowdown in area inflation suggested a higher likelihood of the Reserve Bank of Australia lopping interest rates, now at 2%, to new all-time lows before the end of the year. Underling or core inflation slowed to 0.3% in the third quarter from 0.6%, below forecasts of 0.5%. The RBA next meets on Nov. 3.

EUR

The euro held near but above mid-August lows against the dollar ahead of today’s crucial policy update from the U.S. central bank. After plunging several cents since the ECB on Thursday kicked open the door to stronger stimulus before the end of the year, the euro would be in line for a bit of a reprieve should the Fed stop short of signaling a December rate hike.

CAD

Sliding oil prices this week to two-month lows below $43 had the Canadian dollar flirting with October lows against its U.S. counterpart. However, firmer oil prices today helped the loonie stabilize above Oct. 1 lows. Key risk events ahead for USD/CAD include today’s afternoon policy decision from the Fed and Canadian monthly growth on Friday. 

USD

Profit taking on the dollar’s resurgence over the past week kicked in ahead of today’s 2 p.m. ET decision from the Fed, coaxing the dollar lower. The Fed isn’t expected to raise rates today but barring a removal from the table of a move in December, the dollar’s positive underling bias suggests it shouldn’t stray meaningfully far from multimonth peaks. After this week the Fed has one last meeting this year, on Dec. 15- 16. Critical risk for the dollar looms Thursday with U.S. growth forecast to slow to a 1.6% annual rate in the third quarter from a 3.9% pace in the second quarter. If weaker than that, the dollar could struggle as it would hint at a longer wait for a Fed rate hike.