Fight for the Fed reaches fever pitch

In an interview with Fox News’ Lou Dobbs overnight, President Trump said the current Fed chair Janet Yellen was “very impressive. I like her a lot.” He clearly didn’t like her enough as, according to Politico, the race for the Fed chairmanship is down to two: academic John Taylor and current member of the Fed board of governors Jay Powell. Bets on outsiders like ex-Goldman man Gary Cohn and former Fed governor Kevin Warsh seem to be all but lost.

The story is yet to be confirmed from any official source, but the apparent removal of perennial dove Yellen from the race has proved positive for the US dollar. The belief that John Taylor would be a more hawkish Fed chair (based on his titular ‘Taylor Rule’) is now being priced in, but the volatility is unlikely to end until Trump himself confirms Yellen’s successor.

With little tier 1 data left on the calendar, Fed speculation will dominate trade today until we see preliminary GDP figures due tomorrow morning.

Bank of Canada talk down the Loonie as the strong CAD stifles inflation

Yesterday saw the CAD marked down sharply throughout the day as investors honed in on comments from the Bank of Canada after their unchanged rate decision. Economic forecasts now see the Canadian economy growing at a slower pace in 2018 than in 2017 and the progression of inflation won’t be helped by a currency that’s strengthened sharply since the beginning of 2017. With a strong currency stifling inflation, hindering exports and businesses becoming increasingly uncertain over the future of the NAFTA trade agreements, it’s unsurprising to see the Bank of Canada striking a more conciliatory tone.

USD/CAD now sits well above the 1.28 mark for the first time since early July.

European Central Bank pulls off a ‘dovish taper’

Within the past two hours or so, the European Central Bank have kept benchmark interest rates unchanged (no surprises there) and slowed down the pace of their asset purchase program. From January 2018, the ECB will buy €30 billion per month in corporate and government bonds, down from the €60 billion per month they currently buy. While the majority of this was very much baked into expectations, euro markets have taken the single currency lower on the pessimism shown by ECB President Draghi on inflation progression in the Euroarea. While we’re seeing pretty broad-based growth from southern to northern Europe, he’s right – inflation dynamics just aren’t following.

EUR/USD now sits just above the week’s lows of 1.1725 as the press conference continues.

The day ahead

Neel Kashkari, a member of the Fed’s rate-setting committee, is due to speak this morning and could comment on the race of who gets to be his boss, but other than that, it’s a relatively quiet session. Japanese CPI crosses the wires overnight ahead of US GDP numbers tomorrow.

Have a great day.