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- The Canadian dollar will be in the spotlight ahead of the upcoming Bank of Canada decision.
- The euro continued falling after the European Central Bank delivered another interest rate cut.
- The Philippine peso bounced back after the Bangko Sentral ng Pilipinas central bank decision.
- The Thai baht continued its strong rally after the bank slashed rates.
- The British pound stabilized after the strong UK retail sales data.
USD/CAD waits for BoC decision
The USD/CAD exchange rate continued its strong rally, reaching its highest point since August 6 as traders waited for the next Bank of Canada (BoC) decision. It rallied to a high of 1.3837, up by almost 3% from its lowest point in September.
The pair’s rally has coincided with the ongoing US dollar index rally. Data shows that the US dollar index has surged by over 3% from the year-to-date low of $100.17 to $103.40.
The key catalyst for the USD/CAD pair will be Wednesday’s Bank of Canada (BoC) interest rate decision. Analysts expect the bank to continue cutting rates since inflation has crashed below the target of 2.0%.
According to Reuters, most analysts expect it to cut rates by 50 basis points to, making it one of the most dovish central banks in the market. In a note, an analyst from Capital Economics said:
The bank has identified their concern about downside risks to the economy and inflation. We are heading for a 50 basis point rate cut.Capital Economics
Such a big cut will make the USD/CAD an ideal pair for carry trade since there are signs that the Fed will not be as dovish as expected. A carry trade opportunity happens when traders borrow a low-yielding currency like the Canadian dollar and invest in the greenback.
EUR/USD slumps after ECB cut
The EUR/USD exchange rate continued its downtrend after Europe published weak inflation data and after the European Central Bank (ECB) slashed interest rates again.
Data by Eurostat confirmed that the bloc’s inflation continued falling, reaching 1.7% in September. It has dropped below the ECB’s target of 2.0%, and analysts expect that the downtrend will continue.
At the same time, there are concerns that the European economy, especially Germany, is not doing well. Data released recently showed that Germany has remained in a recession as Volkswagen considers cutting jobs.
Therefore, the ECB’s cuts are aimed at boosting the economy by incentivizing consumer and business spending. ING analysts noted:
The decision to cut rates only five weeks after the last cut and with only very few pieces of economic data since then, suggests that the ECB must have become much more concerned about the eurozone’s growth outlook and the risk of inflation undershooting the target.ING Analysts
Philippine peso rebounds after rate cut
The Philippine peso crashed to its August lows against the US dollar and then bounced back after the latest central bank decision.
The USD/PHP pair dropped to 57.48 after the Bangko Sentral ng Pilipinas decided to cut interest rates by 0.25% to 6% as most analysts were expecting.
In his press conference, the bank’s governor noted that it may continue cutting rates at a gradual phase in the coming months.
Analysts expect to cut rates again by 25 basis points in December since inflation has dropped to the lowest level in over four years. This inflation has tumbled because of the recent decision by India to lift its rice export ban.
The bank will also cut because the economy is not doing all that well, with the GDP expected to remain below the government’s target of between 6% and 7%. As such, there are odds that it will cut rates by 150 basis points by December 2026.
Thai baht strength continues
The Thai baht has been one of the best-performing emerging market currencies this year. The USD/THB pair retreated from the year-to-date high of 37.25 to a low of 32.15.
It was trading at 33.13, down from this month’s high of 33.63. This retreat happened after the central bank slashed rates by 0.25% to 2.25%, catching most analysts by surprise. Before the meeting, most analysts were expecting the bank to leave interest rates unchanged.
The Thai baht has jumped sharply, helped by the recent government stimulus and the fact that the economy is doing well, helped by the tourism sector. The government expects the GDP ton grow by 2.7% this year, higher than the previous estimate of 2.4%.
British pound stabilizes
The GBP/USD pair crashed to a multi-week low of 1.2974 on Thursday and then bounced back to 1.3051.
It reacted to several important events from the UK. A report released on Wednesday showed that the headline Consumer Price Index (CPI) dropped to 1.7% in September, meaning that the Bank of England (BoE) has achieved its inflation goal.
Another report revealed that the country’s retail sales rose in September, meaning that the economy is doing quite well. Therefore, the Bank of England will likely cut interest rates gradually.
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