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Markets steady ahead of major central bank meetings

Hopes for a “soft landing” in the US economy are still intact after yesterday’s data showed unemployment claims falling and “control group” retail sales continuing to rise – suggesting that consumer demand remains remarkably strong. The dollar is holding steady, Treasury yields are moving higher. Equity futures are down as investors worry about the impact of strikes at the Big Three automakers

Chinese consumer spending and factory activity levels showed improvement in August, and unemployment fell, suggesting that the economy’s downturn is bottoming out. Data released by the National Bureau of Statistics last night showed retail sales rising 4.6 percent last month relative to a year earlier, up from the 2.5-percent annual gain recorded in July. Industrial production grew 4.5 percent year-over-year, accelerating from a 3.7-percent increase in the prior month, and the unemployment rate fell to 5.2 percent from 5.3 percent. Both onshore and offshore yuan pools moved higher, briefly breaking through levels last posted in late August.

The euro remains weaker against both the dollar and yuan after yesterday’s “dovish hike” left market participants with the impression that rates have peaked – and that they may soon come down. European Central Bank president Christine Lagarde said “With today’s decision, we have made sufficient contributions, under the current assessment, to returning inflation to target in a timely manner,” but traders with longer memories suspect that policymakers have hiked into a downturn yet again.

With oil prices pushing toward the $100 barrel level, the Canadian dollar is outperforming most of its major rivals and flirting with the 1.35 threshold against the greenback. We suspect a push higher could come early next week, with the exchange rate correcting from early September’s oversold levels – but gains should be capped as investors pivot toward expecting more rate cuts from the Bank of Canada in 2024.

Today’s data calendar is cluttered with second-tier releases. US import prices and industrial production are seen rising 0.3 percent and 0.2 percent in August, respectively. The University of Michigan’s sentiment index will again show just how delusional US voters are, with left- and right-aligned consumers expressing diametrically-opposed views on the same economic fundamentals. And Baker Hughes will deliver its latest rig count numbers.

Markets Recover As Geopolitical Risk Premia Evaporate
Sentiment swings
Israeli Strike Triggers Short-Lived Volatility Spike
Dollar Juggernaut Slows, But Remains Powerful
Higher for (even) longer
USD upswing continues