Last week was a flurry of negative economic data, most notably low nonfarm payrolls, and a weak ISM manufacturing reading. Nonfarm payrolls came in at 12,000 on Friday, significantly below 113,000 expectations. There was a lack of reaction as markets are relating these low figures to Hurricane Milton impacts.
The DXY Index fell by 0.5% at the start of the week, as we look to the US election on Tuesday and the FOMC meeting on Thursday. With the Iowa poll over the weekend putting Harris ahead by 3 percentage points, markets reacted and traders unwound their positions in the dollar relating to a Trump win.
Victory for Harris or Trump will come down to a number of swing states, with polls too close to have a clear winner. If Harris wins, there would be a divided government that would lead to limited spending and tax cuts. If Trump wins, we’re looking at a rise in trade tariffs and a subsequent trade war.
As for the FOMC meeting, we expect them to cut rates by another 25 bps. Election results are unlikely to sway final decisions, as the Fed is more focused on economic data. With last week’s data supporting a cut, there is currently an 83% likelihood of it occurring.
EURUSD benefits from US election uncertainty by starting the session near 1.90, rebounding from 1.0840 at the end of last week.
Today HCOB manufacturing PMI data will be released, with Eurozone data predicted at 45.9. Later in the week on Wednesday composite PMI data is coming out, with Eurozone data predicted at 49.7.
With the Fed and BoE making interest rate decisions this week, here’s a quick look at ECB policy moves. On Oct. 17 they cut by 25 bps as they look for a regular and easing cutting cycle. The next meeting will be on Dec. 12, with a definite chance of a cut.
Cable touched 1.30 this morning, staying within a tight channel around 1.29. This week’s main influence is US Dollar movement from election uncertainty and Fed rate cut expectations.
Tomorrow we’re looking at PMI data, with composite PMI predicted at 51.7. On Wednesday there will be the BoE rate cut decision, with markets locking in a 92% chance of a 25 bps cut.
