USD/CAD on a see saw ahead of key US data releases

Key Movers

The US dollar was losing steam ahead of the upcoming Federal Open Market Committee (FOMC) meeting minutes and Consumer Price Index (CPI) data release. These FOMC minutes will give insight into policymakers' views on monetary policy. Inflationary pressures in the US are shrinking, easing the need for further tightening by the Federal Reserve. US economic activity remains strong and the labour market continues to show strength. This hints that the Fed still has some space to continue raising rates. The release of September CPI data is anticipated to indicate a drop in the annual inflation rate from 3.7% to 3.5%. While the Fed would welcome these numbers, it would still highlight the inflation to be above the target levels, requiring the Fed to maintain high rates.

The pound continued its winning streak today as markets turned their focus to the United Kingdom’s factory data for August. GBP/USD mainly capitalized on the hawkish stance from Bank of England’s (BoE) policymaker Katherine Mann, where she cleared her stance to bring down inflation to 2%. The sterling has performed better against the USD as markets are not anticipating a further widening of the policy variance between the BoE and the Fed. On the contrary, the inflation in the UK could rebound due to rising oil prices because of the Israel-Palestine conflict. This may accelerate consumer inflation globally. GBP/USD was last seen trading at 1.2309 levels.

The euro has managed to pick up further traction against the USD, resulting in the EUR/USD pair trading near two-week peaks around the 1.0630 level ahead of the FOMC minutes. In regard to monetary policy, markets currently expect the Fed to keep interest rates steady alongside expectations that the European Central Bank (ECB) will also pause policy changes in spite inflation above the bank's target. Final inflation figures in Germany showed the CPI rose at an annualized 4.5% in the year and 0.3% compared with the previous month.