Few reasons to expect the buck will give up recent gains
The dollar extends its post-CPI gains as hawkish Fed expectations, geopolitical tensions and renewed AI jitters weigh on EURUSD, GBPUSD and USDCAD.
USD
The dollar extended its post-CPI gains yesterday, with the DXY climbing a further 0.8% to test 103 overnight, its highest level in roughly eighteen months, even with the cash Treasury market shut for Veterans Day. Fedspeak did little to lean against this, with Goolsbee calling October’s CPI “disturbing”, while Middle East headlines also offered no relief. Tehran denied that talks with Washington are taking place, insisting the Strait of Hormuz stays shut until its seven conditions are met; meanwhile, fresh tanker strikes are seeing Brent crude nudge higher. Overnight, reports that Nvidia’s board is preparing to remove Jensen Huang have knocked Nasdaq futures lower, reviving the AI jitters that prevailed last week. And, with only jobless claims and a heavy Fed speaker slate today, we see few reasons to expect the buck will give up recent gains near term.
EUR
EURUSD slipped to fresh year-to-date lows yesterday, breaking below 1.11 as broad dollar strength overwhelmed what was, on paper, a supportive set of ECB headlines. Still, as we noted earlier this week, hawkish ECB rhetoric is already embedded, and the euro’s rate advantage looks thin next to a Fed expected to keep hiking into the new year. Energy also remains a drag, with hopes of a Hormuz reopening fading after Tehran rejected the latest US proposal. Granted, Brent sits well below October’s peak near $120, but the eurozone’s import dependence means any renewed spike would hit the single currency hardest. Today brings another light docket, and although Lagarde is due to speak in Paris, we expect no meaningful interventions. With no obvious domestic catalyst for a rebound and risk sentiment souring on the Nvidia news, 1.10 scans as the likely next test for EURUSD.
GBP
Sterling struggled again on Wednesday, with GBPUSD slipping below 1.33, though eking out modest gains versus the euro. With little to digest yesterday, this morning’s Q3 GDP print is the key domestic test of the week. On that point at least, the data matched expectations, with Q3 GDP growing 0.7% QoQ, up from 0.5% in Q2. That keeps December hike pricing intact for now at around 70%, consistent with our BoE baseline, though an acceleration to price 2-3 further hikes in 2027 looks overly aggressive to us, posing downside GBP risks on a longer-term reassessment. For the moment, however, traders have found little in this morning’s data to prompt such reconsideration, with sterling opening up the day tracking sideways, awaiting a fresh directional catalyst.
CAD
USDCAD pushed above 1.42 yesterday, printing its highest levels since mid-October. With Canadian markets shut for Remembrance Day, the move was entirely a US story, but it reinforced the policy divergence we highlighted earlier this week. The Fed and the Bank of Canada both decide on December 9th, and while a Fed hike is fully priced, markets see the BoC as a coin flip, particularly after three consecutive monthly job losses. Reports that the Bank is preparing to search for Governor Macklem’s successor add a further wrinkle. There is no domestic data today, leaving US claims and Fedspeak to steer the pair, with 1.43 as the next target if recent momentum extends.