The dollar nudges higher again
The dollar extended its post-CPI advance on Thursday, with the DXY closing 0.3% higher near 103.2, its strongest since April 2025.
USD
The dollar extended its post-CPI advance on Thursday, with the DXY closing 0.3% higher near 103.2, its strongest since April 2025. Treasuries reopened after Veterans Day with 10-year yields back above 5%, while Fed speakers kept the hawkish drumbeat going: Hammack said rates need to reach restrictive territory, preferably in smaller steps, Daly said further tightening is needed, and Williams called inflation stubbornly persistent. A 25bp hike on December 9th is fully priced, with outside odds of 50bp, which we still see as unlikely. Even so, the Fed looks best placed amongst the major central banks to continue tightening policy into 2027, while the relative strength of US growth points to rates staying higher for longer than in other major economies. That backdrop should keep the dollar well supported, especially against the euro, where Middle East risks continue to weigh. President Trump declared yesterday that “we don’t need a deal with Iran”, ending negotiations and reassigning Vice President Vance, while Iran reported four tankers hit by explosions in the Strait of Hormuz over two days, lifting Brent more than 3% to above $94. Meanwhile, Nvidia fell 4.3% after Jensen Huang resigned as CEO, albeit without wider risk-off. Today’s focus is October PPI at 13:30 GMT, with consensus at 0.4% headline and 0.3% core. With a hot CPI already priced, a soft print is the bigger risk to dollar momentum, though five Fed speakers should keep the hawkish message intact.
EUR
EURUSD broke lower on Thursday, falling 0.3%, through the previous year-to-date low of 1.1104 and the weakest since April 2025. As we flagged, Lagarde’s Paris Peace Forum appearance offered nothing for markets, so the move was almost entirely a story of dollar strength and rate differentials, with swaps now pricing around 85bp of Fed hikes over the next year against roughly 70bp from the ECB. Oil’s rebound after Trump abandoned talks with Tehran compounds the picture given the eurozone’s dependence on energy imports. A Reuters poll published yesterday found all 71 economists expect a hike to 2.75% on December 17th, but two-thirds see that as the end of the cycle, echoing our view that hawkish ECB rhetoric is already in the price. Today brings the second estimate of Q3 GDP at 10:00 GMT, expected to confirm 0.4% QoQ growth, alongside Q3 employment and September trade data. None of this should change the direction of travel. With 1.11 gone, 1.10 is the next level in focus, and we expect rallies to be sold.
GBP
Sterling spent Thursday tracking the dollar, with GBPUSD drifting down to the mid-1.32s, a four-week low, while EURGBP held near 0.835, leaving the pound close to its strongest levels against the euro since May 2025. Q3 GDP matched expectations at 0.7% QoQ, with September monthly growth of 0.2% beating a flat consensus on the back of AI and cloud-related services activity. The data vindicates last week’s BoE hike to 4.00% and leaves markets pricing roughly a 75% chance of a further 25bp move on December 17th, in line with our base case for one final hike before a pause. Beyond that, swaps continue to price around three more hikes by end-2027, which we think is too aggressive given the MPC’s own guidance that policy is not on a preset path and that much of the priced tightening reflects risk premia rather than expected rates. With no UK data today, cable will trade off US PPI and Middle East headlines, with 1.32 as the next support.
CAD
The loonie was one of the better performers among the majors on Thursday as Canadian markets reopened after Remembrance Day, with USDCAD rising just 0.1% despite broad dollar strength. Oil did the heavy lifting: Brent’s 3% rally on Trump’s decision to end Iran talks and on reports of further tanker strikes in the Strait of Hormuz offered the currency some cover. Even so, the pair sits at its highest since mid-October, and the fundamentals remain unhelpful. October’s 4.7k job loss, the third consecutive monthly decline, pushed unemployment to 6.7%, while reports that the Bank is preparing to search for Governor Macklem’s successor, with Jean Boivin, Jean-François Perrault and Nicolas Vincent among the names in the frame, add uncertainty ahead of the end of his term in June. Today’s September manufacturing and wholesale sales at 13:30 GMT are second-tier. Absent a sustained oil rally, we continue to see 1.43 as the next target for USDCAD.