USD: Looking outside of the US

The latest batch of US data has sent contrasting signals to the Federal Reserve and to the markets. CPI inflation was hotter than expected and the core rate re-accelerated from 3.2% to 3.3% year-on-year on the back of a second consecutive 0.3% month-on-month print. In other circumstances, we would have seen a dollar rally, but there are at least two sets of factors that have capped the FX reaction.

Markets and the Fed are laser-focused on the jobs market, and CPI prints have a smaller impact. The surprise rise in jobless claims might be due to extreme weather events but had a noticeable negative impact on the dollar

The room for further dovish repricing is limited. Markets are pricing in 45bp of easing by year-end, so slightly less than two 25bp reductions. Three FOMC members (John Williams, Austan Goolsbee, Tom Barkin) have largely shrugged off the hotter CPI print, with only the hawk, Raphael Bostic, open to a pause in easing.

We made a case earlier this week for the link between rates/data and the dollar to soften into the US election. Yesterday’s moves seem to endorse such dynamics, and with market pricing for the Fed now likely to prove sticky on both sides, we’ll be monitoring more closely the external environment rather than US data like today’s PPI.

Oil volatility remains central. Crude prices are facing some large daily swings while awaiting Israel’s retaliation against Iran, which could lead to disruptions in supply. Israel's defence minister said the nation’s next move will be “above all surprising”, and Iran has already pledged to strike back should it be attacked, which is probably contributing to the uncertainty and the general sense it will take some time for tensions to de-escalate. We suspect this will continue to offer support to the dollar in the near term.

Another non-US development to follow is tomorrow’s announcement of new stimulus measures in China. The consensus for the size of the package is around 2tn yuan, but the market reaction will probably depend more on the targets of extra spending, with any boosts to consumption probably being favoured. Even in the case of a positive reaction, we are not sure markets are ready to take USD/CNY below 7.0 before the US election. Ultimately, the negative impact on the dollar may be contained. A strengthening into 103.50 in DXY remains possible in the near term.

EUR: Awaiting some help from Beijing

EUR/USD has stabilised in the 1.09-1.10 range, but continues to face downside risks as a USD:EUR two-year swap rate gap at 130bp is consistent with sub-1.09 levels, and Middle East tensions can easily add to the negatives for the pro-cyclical, oil-sensitive EUR. Weekend developments in China will likely be important for EUR/USD’s tactical picture given the euro tends to have a good response to positive China developments. Good news from Beijing can help build a floor at 1.090 early next week.

The eurozone calendar is not offering many market inputs for the time being, and the ECB is in a quiet period ahead of next week’s meeting. The latest ECB minutes did not give many insights about the October meeting, especially in light of recent inflation data surprises. While arguments against a rate cut shouldn’t be entirely dismissed, it would now take quite a lot of courage from the ECB to hold, given markets and the consensus are fully aligned for a 25bp reduction.

Elsewhere in Europe, the UK released some slightly softer-than-expected growth figures for August, with 3M/3M GDP having slowed to 0.2%. Industrial production for the same month came in quite soft, at -1.6% YoY. This is all second-tier data for the Bank of England and sterling has barely budged, but they might be contributing to the recent narrative that a dovish repricing in the Sonia curve is overdue. Still, some encouraging news on services CPI next week is needed to take EUR/GBP sustainably back above 0.84.

CAD: Jobs data can help hawkish repricing

Canada releases jobs figures for September today, and the consensus is centred around a solid 27k employment print, with unemployment inching up from 6.6% to 6.7%. If the numbers prove to be close to consensus, we doubt the Bank of Canada will be rushed into a 50bp cut later this month. Markets are pricing in 48bp for 23 October meeting and 70bp in total by year-end, which looks a bit overblown on the dovish side, in our view.

Accordingly, we see some room for hawkish repricing to offer help to the Canadian dollar, which has remained under pressure against USD despite higher oil prices. We had previously identified room for CAD’s outperformance against other commodity currencies and could see another leg lower in AUD/CAD and NZD/CAD today before the expected Chinese stimulus story over the weekend gives some help to the antipodeans.

CEE: Central banks in hawkish mode

Yesterday's inflation figures in the region brought surprises in both directions. In Hungary, inflation surprised slightly down with a drop from 3.1% to 3.0% YoY. On the other hand, in the Czech Republic, it surprised on the upside with a rise from 2.2% to 2.6% YoY. In both countries, this is in line with the trend of surprises in recent months and our indications of risk. However, central banks are now in hawkish mode in CEE and while in Hungary this will not be a reason for a rate cut in October, in the Czech Republic it increases the probability of a pause in the cutting cycle.

This morning we got inflation numbers for September in Romania as well. Inflation fell from 5.10% to 4.62%, slightly below the 4.70% consensus. At the last meeting in October, the central bank left rates unchanged after two cuts earlier. Our economists don't expect a rate cut at the meeting in November, but weaker inflation numbers leave this topic open.

Although the first half of the week suggested stabilisation and finding ground underfoot, yesterday shows that the situation is not simple. As we have discussed here before, global risks have not changed much and CEE FX remains fragile. With higher inflation numbers in the Czech Republic, we see a chance for hawkish comments from the Czech National Bank that could support the koruna in the current uncertain environment. On the other hand, the National Bank of Hungary has already commented on the current situation, essentially ruling out a rate cut in October. However, EUR/HUF is back above 400 and not far from 402. Thus, the koruna and zloty seem to be more defensive in these conditions, while the forint, as usual, remains more sensitive to global exposure.

Source: TheGuardian

The Pound Sterling (GBP) is expected to trade in a range, probably between 1.3020 and 1.3100. In the longer run, there has been no further increase in momentum; a breach of 1.3125 would suggest that 1.3000 is out of reach, UOB Group’s FX analysts Quek Ser Leang and Lee Sue Ann note.

Breach of 1.3125 to suggest that 1.3000 is out of reach

24-HOUR VIEW: “Yesterday, when GBP was at 1.3070, we expected it to ‘drift lower, potentially breaking below 1.3050.’ We added, ‘due to the lackluster momentum, any decline is unlikely to reach 1.3000.’ GBP did not break below 1.3050 until NY trade, when it dropped to 1.3011 and then rebounded sharply. GBP closed slightly lower at 1.3061 (-0.11%). The price action did not result in any increase in downward momentum. Today, we expect GBP to trade in a range, probably between 1.3020 and 1.3100.”

1-3 WEEKS VIEW: “In our most recent narrative from last Monday (04 Oct, spot at 1.3130), we indicated that “although the recent price action suggests further GBP weakness, conditions are oversold, and the next major support at 1.3000 may not come into view so soon.” Yesterday, GBP dropped to a low of 1.3011. Despite the decline, there has been no further increase in downward momentum. However, only a breach of 1.3125 (‘strong resistance’ level was at 1.3150 yesterday) would suggest that 1.3000 is out of reach this time around.”

Source: FXSTREET

Tesla has unveiled its groundbreaking Cybercab robotaxi, a fully autonomous vehicle that marks a significant shift in the company’s strategy. At the “We, Robot” event held at Warner Bros. Studios, Elon Musk introduced this driverless innovation, signaling Tesla’s ambition to lead in robotics and artificial intelligence (AI). This move comes at a critical juncture for Tesla, as its electric vehicle (EV) business faces increasing competition and a softening market. The Cybercab represents a bold step towards a future where Tesla’s revenue streams extend far beyond EVs. But will this ambitious gamble pay off? And how will it impact Tesla’s share price and its position in the tech landscape? Let's explore the implications of this game-changing development.

The end of driving? Tesla’s bold vision for the future of transportation

Elon Musk has outlined a visionary future for transportation, one where autonomous vehicles drastically reduce traffic accidents and create a more relaxed, efficient commuting experience. In this futuristic world, cars will become "comfortable little lounges" where passengers can work or unwind while traveling to their destinations. Musk even envisions parking lots being transformed into parks, and personal vehicle ownership greatly diminishing.

The Tesla Cybercab—a two-door autonomous vehicle—is central to this vision and is considered Tesla’s most significant milestone since the Model 3’s debut in 2017. Expected to be priced below $30,000, the Cybercab will feature no steering wheel or pedals, and it will utilize inductive charging. Alongside the Cybercab, Tesla has also introduced the Robovan, a larger autonomous shuttle capable of carrying up to 20 passengers.

Musk is known for his ambitious timelines and has predicted that Cybercab production could begin before 2027, though there’s no specific timeline for the Robovan. If Tesla can bring these vehicles to market at a competitive price, it could dramatically accelerate the adoption of autonomous technology and reshape the transportation landscape.

Tesla's autonomous ride-hailing vision: A new era of mobility

Autonomous ride-hailing has been a cornerstone of Elon Musk’s vision for Tesla since he first introduced the concept in 2019. Musk foresees a future where driverless vehicles redefine transportation, aiming to transform both the roads and the way we move. His goal is to create a world where passengers are seamlessly shuttled around by fully autonomous vehicles, which will serve as the backbone of Tesla’s new business model.

Musk has emphasized that the success of Tesla’s autonomous vehicle technology is vital to the company’s long-term growth and market valuation. He has even projected that the widespread deployment of self-driving cars, coupled with advances in robotics, could boost Tesla’s market value to $30 trillion—nearly 40 times its current level.

The Cybercab is part of Musk’s larger strategy to position Tesla as a leader in AI, robotics, and full transportation autonomy. This strategy is becoming increasingly central to Tesla’s identity, especially as its EV lineup ages, and the company faces challenges, including a 10% workforce reduction and significant cuts to its charging team.

A two-part autonomous ride-hailing business model

Tesla’s autonomous ride-hailing business could operate on two fronts. The first involves Tesla running its own fleet of robotaxis through a dedicated Tesla ride-hailing app. This would allow the automaker to compete directly with services like Uber and Lyft, but with the significant advantage of fully autonomous vehicles.

The second part of Musk’s strategy resembles the models of companies like Uber or Airbnb, with a unique twist. Tesla owners whose vehicles are equipped with full self-driving (FSD) technology will be able to add their cars to Tesla’s ride-hailing network, earning extra income when their vehicles are not in use. Tesla will take a 25% to 30% commission on these earnings, similar to the fee structure of other app-based marketplaces like Apple's App Store.

Bottom line: Autonomous driving – Tesla’s future

For Musk, autonomous driving is not just an innovation—it’s the future of Tesla. Investors have long viewed Tesla not merely as a car manufacturer but as a technology company with enormous potential in AI and automation.

Successfully bringing autonomous vehicles to market could have profound effects on the transportation industry. Tesla could democratize access to personal transportation and reduce traffic congestion by offering affordable and reliable autonomous vehicles. However, the company must overcome significant hurdles, including navigating complex regulatory environments, resolving technological challenges, and competing with rivals such as Alphabet’s Waymo and General Motors’ Cruise.

Tesla’s future may depend more on its success in the autonomous vehicle space than on its EV sales. The company’s performance in advancing self-driving technology could significantly impact its stock price in the coming years. Any delays or setbacks in achieving its ambitious goals could dampen investor confidence and lead to a decline in share value.

This shift in focus comes as Tesla faces headwinds in the EV market, with increased competition and slowing demand. As of Friday, October 11, before the U.S. market opened, despite a remarkable 5-year growth of 1,344%, Tesla’s stock had dipped 3.88% since the start of 2024 and 9.21% over the past year.

Source: FXSTREET

The British pound is showing little movement on Friday in what has been a very quiet week for the currency. In the European session, GBP/USD is trading at 1.3071, up 0.10% on the day and its lowest level.

The UK economy showed slight improvement in August with a 0.2% m/m gain, after no growth in both June and July. This was in line with expectations and the pound’s reaction has been muted. Services, construction and manufacturing were all in positive territory, as the economy continues to show signs of growth. On a yearly basis, GDP rose 1%, up from a revised 0.9% in August but shy of the market estimate of 1.4%.

The slight rebound in the economy comes at a convenient time for the government, which will release the autumn Budget on October 30. The government is counting on the Bank of England to continue cutting rates in order to boost economic growth. Finance Minister Rachel Reeves has said that kick-starting the weak UK economy is the “number one priority.

The Bank of England delivered its first rate cut of the new cycle in August but stayed on the sidelines in September. The next meeting is on November 7 and the UK releases inflation and employment data ahead of the meeting, which will likely determine whether Bank policy makers feel comfortable making another quarter-point cut.

The US wraps up the week with the producer price index for September. Headline PPI is expected to tick lower to 1.7% y/y, compared to 1.6% in August. The core rate, however, is projected to rise to 2.7%, up from 2.4% in August. With inflation largely beaten, the Federal Reserve’s primary has shifted from inflation to employment. Still, an unexpected PPI reading in either direction could have an impact on the movement of the US dollar.

Source: OANDA

The USD/CHF pair wobbles near the immediate support of 0.8560 in Friday’s European session. The Swiss Franc pair edges higher despite the US Dollar (USD) exhibits a subdued performance. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, falls slightly but remains close to an eight-week high of around 103.00.

The outlook of the US Dollar remains firm as traders are expecting the Federal Reserve (Fed) to cut interest rates again in the November policy meeting but at a gradual pace of 25 basis points (bps), according to the CME FedWatch tool.

Lately, market participants were anticipating the Fed to deliver another 50-bps cut next month, as seen in September. Market expectations for the Fed's sizeable rate cut waned after the blowout United States (US) job data and hotter-than-expected Consumer Price Index (CPI) report for September.

For more cues on the Fed’s interest rate outlook, investors will focus on the US Producer Price Index (PPI) data for September, which will be published at 12:30 GMT. The PPI report is expected to show that the headline producer inflation rose by 1.6%, slower than 1.7% in August year-on-year. On the contrary, the annual core PPI is estimated to have accelerated to 2.7% from the prior release of 2.4%.

In the Swiss economy, the Swiss National Bank (SNB) is expected to cut interest rates further this year. "With inflation being reasonably low in Switzerland and with an economy that could grow faster, that tends in the direction of a lower policy rate," Martin told an event organized by the Swiss Financial Analysts Association in Zurich, Reuters reported.

An improvement in the likelihood of more rate cuts from the SNB would keep the Swiss Franc (CHF) on the backfoot.

Source: FXSTREET