Dollar, Treasuries, Stocks & Gold: A Calm Day with a BoC Twist
Yesterday was a pretty mellow day for the markets. The U.S. dollar kept dancing higher as Treasury bonds trimmed their midday slides. Stocks took the win, buoyed by gold hitting new all‑time highs. Big news? The Bank of Canada may drop a 50‑basis‑point cut next week – that’s the real buzz.
Where We Stand
- Central bank chatter: The IMF‑World Bank meetings in Washington were all talk and no shocker – President Bailey and President Lagarde stayed very prudent, sticking to the usual “data‑dependent” playbook.
- Growth lag in the West: U.K. and Eurozone growth continues to trail behind the U.S., a sentiment that keeps traders feeding the “U.S. exceptionalism” hype.
Because of that, the dollar (DXY) happily crossed the 104 mark and nudged above its 200‑day moving average for the first time since early August. Little else in the short term to derail that trend, especially with elections looming and the safe‑haven push kicking in.
The greenback’s rise spread across the G10 currency set. The USD/JPY kept moving higher, briefly snapping back above 151 – the same resistance it broke earlier this year. It looks like a pre‑election jitters buf is at work, although the 200‑day average sits right above 151.40, so the rally might stall soon.
Meanwhile, the euro dipped under 1.08 for the first time since August. With growth concerns in the currency market, bears are eyeing a bounce back to the August low of 1.0775 before possibly testing 1.07 in case of a bigger swing.
Fixed Income in the Shade
Treasure bonds swung hard in the opening minutes of trading, only to rebound by the close. Some saw the early selling as a “Trump Trade” flutter, but the trend is better explained by a ramped‑up expectation of long‑run growth – Citi’s economic surprise index hit the highest level since April.
Don’t confuse the bull in savings for the bull in cash. For instance:
- USD/MXN implieds remain way below pre‑election highs, still leaving room for upside if a Trump win becomes more likely.
- Bond yields are stubborn – 4.2% on 10‑year and 4.5% on 30‑year. Even a high rate can tempt buyers.
Gold stole the show, smashing fresh all‑time highs and keeping momentum strong. Short gold positions are now a risky move, like stepping on a rusty elevator without being sure the door will stay shut.
Canadian Frontiers & Mark Carney’s New Gambit
Mark Carney, the former Bank of England chief, has made a return to the political arena, targeting Prime Minister Trudeau during the upcoming Canadian election. The same loose forward guidance that once earned him the nickname “Unreliable Boyfriend” may see his political ambitions fade just as quickly as his tenure at the BoE.
Looking Ahead
Today’s data menu is lighter than usual – no headline releases to shake things up.
However, the Bank of Canada’s decision to cut the rate by 50 basis points (to 3.75%) is the main story. Money markets are pricing nearly an 80% chance that the cut will happen. Traders should pay close attention to the forward guidance, as a dovish surprise could still surprise anyone – and the USD/CAD overnight implieds are sitting at 5.59%, the highs seen in a 12‑month stretch. That lends the potential to swing roughly 75 pips over this decade, an almost one‑standard‑deviation confidence level.
Stay tuned, and keep an eye on how these moves shape the broader market environment as we head into a potentially exciting range of policy actions.
