• US protectionist trade policy is a drag on USD. Fed Beige Book and Powell take the spotlight this week.
• France’s stability hangs on a razor’s edge.
• Monetary Authority of Singapore to hold the line.
Heads up: No daily strategy report this week as I’m on the road. Back next week with fresh insights.
US: Beige Pulse
USD rallied last week to its highest level since August 1 reflecting external headwinds (France’s political crisis, Japan’s ruling LDP leadership election results) rather than a more favorable US fundamental backdrop. That suggests the USD upswing is on shaky foundations.
USD retraced some of those gains last Friday following the dramatic flare-up in US-China trade tensions. President Donald Trump announced plans to impose 100% tariffs on all Chinese goods imports and export controls on “any and all critical software”, effective November 1. These measures came after China added new port fees on US ships, started an antitrust investigation into Qualcomm Inc., and introduced new export controls on rare earth elements. On Sunday, China’s Commerce Ministry warned that “If the US persists in its own course, China will resolutely take corresponding measures to safeguard its legitimate rights and interests.”
Our long-standing view is that US protectionist trade policy is a drag on USD. Interestingly, the IMF points out that the US effective rate is now far above the rest of the world’s, which has held relatively steady this year, with very few cases of retaliation. That creates downside risks to US growth and upside risk to US inflation, while the global economy is resilient. The IMF publishes its October World Economic Outlook Tuesday.
We’re still flying blind amid the ongoing US government shutdown, with key economic data releases on hold. As such, the NFIB September small business optimism index (Tuesday) and the Fed Beige Book (Wednesday) are among the few lenses into the actual state of the economy. There’s also plenty of Fed speakers this week including Fed Chair Jay Powell (Tuesday).
France’s Stability Hangs on a Razor’s Edge
We expect EUR/USD to carve out a bottom around 1.1450-1.1500. France’s newly reappointed Prime Minister Sebastien Lecornu has a narrow path to survive politically and push through a budget by December 31. The premier must convince both the Socialists and the center-right Republicans to abstain or even lend conditional support on a budget vote. Encouragingly, a majority of deputies oppose dissolution of parliament, meaning a path is possible to adopt a budget. Monday is the hard deadline for Lecornu to present a draft budget bill.
If Lecornu’s government collapses again, political instability will deepen but France’s constitution guarantees continuity of the state’s finances which limits EUR downside. The President can enact a budget bill by ordinance (Article 47) or authorize spending by decree on the basis of last year’s budget (Article 47(3)). A government can also introduce a stopgap or provisional finance law that extends parts of the previous year’s budget.
UK: Jobs and GDP on Deck
We expect GBP/USD to hold above 1.3200. The Bank of England’s (BOE) next policy decision and Monetary Policy Report are on November 6. No policy change is expected the rest of the year. Markets await details of the upcoming budget (scheduled for November 26) to gauge how much more easing the BOE can deliver to offset the projected fiscal drag. Over the next 12 months, the swaps market implies 37bps of easing and the policy rate to bottom between 3.50%-3.75%.
The UK August jobs data (Tuesday) is anticipated to show a further loosening in the labor market and upside risk to inflation. The unemployment rate is forecast at 4.7% vs. 4.7% in July while the vacancy-to-unemployment ratio is projected to fall further below the 0.53 level that Bank researchers consider to be consistent with a balanced labor market.
Meanwhile, total regular pay is expected at 4.7% y/y vs. 4.8% in July, while private sector regular pay is expected to ease to 4.5% y/y vs. 4.7% in July. The BOE projects private sector regular annual pay growth to average 4.6% in September and 3.7% in December. Nonetheless, the pace of wage growth is running hot relative to the BOE’s 2% inflation goal given labor productivity is estimated at 0% in 2025.
UK August real GDP (Thursday) is seen rising 0.1% m/m after stagnating in July. Nonetheless, UK final September S&P Global composite PMI (which fell to a 5-month low at 50.1 vs. 53.5 in August) points to a sharp slowdown in private sector growth momentum. For reference, the BOE projects real GDP growth of 0.3% q/q in Q3 vs. 0.3% in Q2.
RBA In a Good Spot
AUD/USD can edge higher as the RBA is on track to ease more cautiously than the Fed and global economic activity is resilient. The RBA will publish the minutes of the September 30 policy meeting (Monday). At that meeting, the RBA unanimously voted to leave the policy rate at 3.60% and signaled that the bar for additional rate cuts is high. RBA Governor Michele Bullock stressed that the economy “is in a good spot” as inflation is within the 2–3% target range and the unemployment rate (4.2% in August) is relatively low compared with history.
Australia’s September labor force report is due Wednesday. The economy is projected to add 20k jobs vs. -5.4k in August and the unemployment rate is seen rising 0.1pts to 4.3%, in line with the RBA’s forecast. The next RBA meeting is November 4 and cash rate futures price-in 40% odds of a 25bps cut to 3.35%. Over the next 12 months, cash rate futures continue to more than fully price-in one 25bps cut and rates to bottom around 3.35%.
MAS to Hold the Line
80% of economists surveyed by Bloomberg expect the Monetary Authority of Singapore (MAS) to maintain the policy stance for a second straight meeting (Monday). Specifically, the MAS is poised to keep the prevailing rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band and make no change to its width and the level at which it is centered.
The risk is MAS loosens policy (as it did in January and April) by slightly reducing the rate of S$NEER appreciation because Singapore core inflation is tracking 0.2pts below the MAS 2025 forecast range of 0.5–1.5%.
China: Trade and CPI on Deck
China September trade balance (Monday) and CPI (Tuesday) are the data highlights. China’s economy is struggling to escape a deflationary spiral in large part because consumption spending is too weak. In our view, a gradual revaluation of China’s currency could help China stimulate consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH has room to edge lower.
