Upcoming central bank decisions in the Eurozone and Canada are expected to have an impact on the foreign exchange market. However, FX traders are likely to pay more attention to the US GDP report. The strong economic performance of the United States, supported by government spending and a tight labor market, has defied expectations of a slowdown. The upcoming GDP numbers are expected to confirm this positive trend. The projected growth rate for the third quarter is 4.1%, almost double the previous quarter. There is even potential for an upside surprise, as the Atlanta Fed’s model predicts growth of 5.4% during the quarter. A positive GDP print could lead to a resumption of the US dollar rally. The dollar has been supported by solid economic fundamentals, rising US yields, and a lack of alternatives in the FX market. The dollar’s outlook remains positive, as it boasts the strongest economic growth and highest real interest rates among G10 nations. On the other hand, Europe and China are facing economic slowdowns, and the Japanese yen has been affected by the Bank of Japan’s decision to keep rates low. There are some risks on the horizon, including consumer savings running out and student debt repayments resuming, but overall, the dollar seems to be in a better position compared to other currencies. Aside from the GDP report, other US releases such as the S&P Global business surveys and the core PCE price index could impact markets in the coming week. In the Eurozone, the central bank is unlikely to make any changes to interest rates, considering the downward trajectory of the economy. New business orders are falling, and consumers are facing higher mortgage costs and oil prices. The ECB is not expected to raise rates again and there are concerns about a possible recession. The focus of the meeting will be on forward guidance, but policymakers are unlikely to provide concrete signals due to the uncertain outlook. In the UK, business surveys and employment data will be released, which could affect the pound. The British labor market lost jobs in the summer, and if this trend continues, it could raise the risk of a recession and negatively impact the pound. The Bank of Canada is also expected to maintain its current rates, as inflation has been cooling and there are concerns about weaker demand and fading pressure on wages. The broader path of the Canadian dollar will also depend on other factors such as the crisis in the Middle East and its impact on oil prices. Additionally, the quarterly inflation report from Australia and Tokyo inflation data from Japan will be released.
