Despite Slight Weakness Today, USD Remains Elevated Overall

USD

While slightly softer this morning, the U.S. dollar remains near its recent highs against most of its major counterparts.  Yesterday’s modest increase in consumer inflation allowed markets to hold their expectations for an interest rate hike in December.  Today’s economic data has yet to have a significant impact on the greenback.  Housing starts fell 9.0% on a month over month basis in September.  However, building permits, a gauge for future construction, rose 6.3%.  The market has decided that the two prints are a wash.

With no further risk events in the U.S. scheduled for today, we will look abroad for market-moving catalysts.  At 10 a.m. Eastern, the Bank of Canada will release their interest rate decision and their Monetary Policy Report.  The Canadian dollar is trading at a 3-week high against the U.S. dollar, benefiting from a recent rise in oil prices.

Tomorrow will see the release of the European Central Bank’s policy decision.  No change to policy is expected.  The common currency is trading near its lowest point since July and is within half a percent from its weakest level since early March.

JPY

The Japanese yen is stronger across the board this morning, as the safe-haven currency benefited from steep declines in European equities.  Most Asian stock indexes are also lower today.  The yen has also benefited from a number of news headlines that suggest the Bank of Japan will not add to its current stimulus package when it meets on November 1st.

The yen was unable to take full advantage of the risk-off environment due to positive Chinese data.  Third quarter GDP rose 6.7%, which is in line with the government’s projection.  The strong growth data will ease some angst that the world’s second largest economy is faltering.

GBP

The British pound was mostly unchanged overnight, holding onto its limited gains from yesterday’s session.  The sterling found support yesterday after a report showed that consumer prices rose at the fastest pace in nearly two years.  Economic data released today also showed a slightly rosier outlook for the beleaguered economy.  Employment rose 106K over the last three months, which beat expectations.

However, the sterling was unable to take advantage of the jobs print due to a report that Germany would avoid any “back channel” negotiations with the U.K. on “Brexit” talks.  While not surprising, the report has allowed “hard Brexit” worries to resurface and drag down the sterling.