ECB on deck with guidance key today

USD

The dollar spent yesterday consolidating, with the DXY holding near 98.8 and edging away from last week's three-week low, as markets traded the Middle East supply shock rather than US data. Brent's push above $100 per barrel has driven 10-year Treasury yields above 4.8%, and to their highest since 2023, a move compounded by a poorly received bond buyback and Treasury Secretary Bessent's assertive comments on control of the long end. Today brings August PPI and weekly jobless claims at 13:30 BST, the final inputs before tomorrow's CPI, which we continue to view as the release that swings the balance for the September 16th FOMC. Markets price roughly 60% odds of a 25bp hike to 3.75–4.00% after payrolls surprised last week, though given our bias for a 0.2% core CPI print on Friday, we retain a modest softer-dollar lean.

EUR

The euro was ultimately little changed yesterday, finishing just above 1.16, with ECB-eve caution offsetting any support from rate differentials as eurozone equities bore the brunt of rising oil prices. Today's monetary policy decision at 13:15 BST should deliver the 25bp deposit rate hike to 2.50% that we, and markets, see as all but certain. But with the decision fully priced, the euro's reaction hinges on the new staff projections and President Lagarde's guidance at the 13:45 BST press conference. As we noted earlier this week, the Governing Council must weigh energy-driven inflation upside against an increasingly visible growth drag, so we expect limited clarity today and see tomorrow's US CPI as the bigger catalyst for EURUSD direction.

GBP

Sterling was also little changed on Wednesday, somewhat surprisingly to us. PM Burnham’s comment at PMQs, that “national security cannot come at the expense of social security”, did little to inspire confidence ahead of the Autumn Budget. But politics aside, and with the Bank of England not meeting until next Thursday, the pound remains a passenger to external drivers today: the ECB decision, US PPI, and Gulf headlines. Tomorrow's monthly GDP release for July is the week's main domestic test. We expect sterling to stay heavy while stagflation dominates the narrative, with rallies against both the dollar and the euro likely to fade absent better fiscal news.

CAD

The loonie softened yesterday, despite a more favourable oil backdrop, as we warned it might. Secretary Bessent’s disappointing buy-back announcement, combined with a US import ban on some products and deteriorating risk conditions, ultimately won out. With no top-tier Canadian data today, direction comes from oil, US PPI and claims, and broader risk sentiment. We continue to see the risks tilted toward a higher USDCAD into tomorrow's US CPI, unless crude extends its advance meaningfully.

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.