Dollar Firm as PMIs Take Centre Stage

USD

The dollar starts the European session on a firm footing as markets continue to digest the Federal Reserve's rate increase earlier this month and the message that inflation remains uncomfortably high despite a resilient economy. That combination continues to support the greenback, particularly as investors assess whether inflation pressures will prove more persistent than previously expected.

Geopolitical developments remain a key consideration. While reports of potential diplomatic progress involving Iran helped ease immediate concerns around energy supply disruption and weighed on oil prices at the start of the week, the broader conflict across the Middle East remains unresolved. As a result, markets remain alert to any developments that could affect energy prices, inflation expectations and the outlook for global monetary policy.

Attention today turns to the flash September PMI surveys, with the US manufacturing and services readings due this afternoon. The data will provide an important update on economic momentum and should offer fresh insight into how businesses are responding to the current interest-rate environment. For now, resilient growth, sticky inflation and geopolitical uncertainty continue to provide a constructive backdrop for the dollar.

EUR

The euro remains on the back foot against the dollar as markets continue to favour the relative strength of the US economy and policy outlook. Although the ECB tightened policy earlier this month, the single currency has struggled to capitalise, with investors focusing instead on the wider divergence in economic performance between the US and Europe.

ECB policymakers have continued to highlight inflation risks, particularly those stemming from higher energy costs and ongoing tensions in the Middle East. At the same time, recent data have shown that the euro area economy has remained more resilient than many had anticipated, helping to reduce concerns around an abrupt slowdown.

Today's focus is firmly on the latest flash PMI surveys from France, Germany and the wider euro area. These releases will provide one of the first meaningful indications of economic performance heading into the final quarter of the year and may help shape expectations for growth and policy over the coming months. Alongside the data, developments in energy markets will remain an important driver of sentiment.

GBP

Sterling's attention today is squarely on the September flash PMI releases, which are expected to provide one of the earliest snapshots of UK economic activity this month. With little else on the domestic calendar, the surveys are likely to be the primary source of volatility for the pound during the European morning.

The Bank of England left policy unchanged at its September meeting, although the split vote reinforced the view that inflation remains a significant concern for policymakers. The MPC also highlighted the impact of higher energy prices and noted that ongoing hostilities in the Middle East have increased uncertainty surrounding the inflation outlook.

For sterling, the balance between growth and inflation remains the dominant theme. A resilient set of PMI readings would support expectations that policy will remain restrictive for longer, while softer data could renew concerns about the ability of the UK economy to absorb higher borrowing costs. Against that backdrop, both today's economic releases and developments in energy markets are likely to remain key drivers of sentiment.

CAD

The Canadian dollar continues to take its lead from external developments, with traders focused primarily on the US outlook and the direction of energy markets. While oil prices softened earlier this week amid reports of potential diplomatic progress involving Iran, the broader geopolitical backdrop remains highly uncertain as hostilities across the Middle East continue.

That uncertainty leaves energy markets vulnerable to renewed volatility. Any deterioration in the situation could quickly reverse recent declines in crude prices and reignite concerns around global inflation, while a more durable easing in tensions would likely help reduce pressure on energy markets and inflation expectations alike.

With little in the way of major domestic data scheduled for today, the focus for CAD is likely to remain on events elsewhere. This afternoon's US PMI releases, broader dollar sentiment and any further developments from the Middle East are expected to be the primary drivers of direction through the remainder of the session.

Disclaimer

This information has been prepared by Monex International Markets plc, part of Monex S.A.P.I. de C.V. (“Monex”). The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. All entities in the “Monex” group of companies are regulated for different products and services within the jurisdictions in which they operate. Details of the different entities can be found here. Details of the respective entities’ regulated status and available products and services can then be found on the relevant links to the individual jurisdictions’ website.