Economic Calendar
Even with the US government shut down for the entire month of October, the dollar and stock market both rallied. It was only the second month this year that the DXY posted gains, showing how resilient the American economy remains in the face of political and fiscal challenges. Growth continues to surprise on the upside. The Atlanta Federal Reserve’s GDP tracker points to a strong 4% expansion in the third quarter, compared to the market consensus of just 2.7%. Much of this momentum is being driven by spending tied to artificial intelligence, which analysts estimate accounts for more than half of US growth this year.
The Federal Reserve delivered a rate cut in late October but worked hard to push back against expectations of another cut in December. Fed Chair Powell made it clear that policymakers are not convinced more easing is necessary, especially since headline inflation has risen for five straight months. After Powell’s comments, the market scaled back expectations for a December cut — from more than 90% odds to around 70%. Still, that remains high and could shift again as more Fed officials start speaking following the end of their pre-meeting blackout period.
For now, the Fed appears cautious. Powell explicitly said he does not expect a sharp weakening in the labor market, suggesting that the bar for another rate cut is quite high. Inflation remains elevated, and with limited economic data due to the government shutdown, the central bank may prefer to wait before taking further action. The longer the shutdown lasts, however, the more pressure it will put on growth. About 1.4 million federal employees missed paychecks in October, half of whom were furloughed. Economists estimate that every week of shutdown shaves around 0.1% off GDP.
There’s also another potential twist ahead: the Supreme Court will soon hear oral arguments challenging the tariffs imposed under the International Emergency Economic Powers Act (IEEPA). A secondary market has already developed for possible tariff refunds, should the Court decide those measures exceeded presidential authority. That uncertainty could stir volatility in trade-sensitive sectors.
Across the Atlantic, the euro remains under strain. The yield advantage that US assets hold over their European counterparts has narrowed from above 200bp in May to around 160bp now, but it remains significant. Current policy rates show a 225 bp gap, and markets expect that to narrow to about 100 bp within a year — but investors are not betting on the euro gaining much from that.
Europe faces several structural and political challenges. China’s new export controls on critical minerals and electric vehicle battery technology threaten to hurt European industry, particularly as the region is already coping with US tariffs, competition from cheap Chinese imports, and energy shocks from Russia’s hybrid warfare. Meanwhile, the Netherlands’ takeover of Nexperia — a chip company previously bought by a Chinese firm — has irritated Beijing and complicated relations at a time when Washington has agreed to relax some sanctions on Chinese subsidiaries.
Germany’s economy, the region’s largest, continues to stagnate. France, on the other hand, is mired in political tension, and its fiscal position has weakened. Markets now believe the European Central Bank has finished its easing cycle; current pricing suggests less than a 50% chance of another rate cut next year. Taken together, these factors point to limited upside for the euro. Without stronger growth or renewed investor confidence, the single currency is likely to remain sluggish or drift lower.
The British pound has been on uncertain footing as speculation builds over a potential Bank of England rate cut. Market-implied odds jumped from about 25% at the end of September to nearly 70% at the end of October. Some traders even see a small chance of a rate hike at the November 6 meeting — though that seems exaggerated given current conditions.
More importantly, the focus is turning to the Fall Budget due on November 26, which could have a far greater impact on sterling. Chancellor Rachel Reeves is under pressure to reconcile Labour’s campaign promises with the UK’s fiscal constraints. The government’s projected £10 billion buffer is considered too small, and efforts to expand it may require tax hikes or spending cuts. That is unlikely to please either businesses or households. Measures under consideration include raising marginal tax rates on high incomes, adjusting income brackets to increase tax collection, and even taxing private school fees.
Political challenges also linger. Deputy Labour leader Powell’s appointment reflects the party’s left-leaning faction gaining more influence, and a recent by-election loss in Wales — the first in more than a century — underscores shifting voter sentiment. Meanwhile, the Reform Party led by Nigel Farage continues to attract attention, adding further uncertainty to the political landscape. These factors suggest a heavy policy environment for the pound, with risks tilted to the downside.
The Canadian dollar has also struggled, weighed down by weak growth and renewed tensions with Washington. The Bank of Canada began cutting rates last year as the domestic economy slowed, but disruptions from the US continue to spill over. A recent controversy erupted when Ontario ran an advertisement during the baseball World Series featuring former President Reagan criticizing tariffs — an ad that infuriated Donald Trump, who promptly suspended trade talks with Canada and announced a new 10% tariff, though it has yet to be implemented.
Prime Minister Carney’s government is pushing to expand Canada’s trade ties beyond the US, with a goal of doubling exports to non-US markets within a decade. However, that strategy could create new friction if Canada pursues closer trade relations with China. For now, Canada’s key export commodities, including potash, remain stable, but its overall economic outlook is fragile. The divergence between a cautious Federal Reserve and a more accommodative Bank of Canada favors a stronger dollar over the loonie.
Analysis by Coach Angel, RoboAcademy
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Disclaimer: Investing is risky. Investors should study the information before making investment decisions.
