Busy week ahead in US

The USD could gain ground in the weeks ahead as positioning has cleaned somewhat and next Thursday the Fed could continue signaling its willingness to start its normalization cycle no later than the 1Q of 2016. Although any meaningful change is not anticipated in the language for the October statement, it could continue highlighting the strength of the local demand and developments on core service inflation. 

Because current market prices assign a only a 50% chance of a move in March 2016, there is some scope for re-pricing in the short end of the US curve assuming that market volatility remains at current levels. It is anticipated that the USD will gain some ground across the board in an environment where relative monetary policy continues favoring the USD as major central banks continue easing.

"We expect on Friday that the employment cost index (a good proxy for future core inflation) will increase 0.5% q/q after disappointing last quarter by only growing 0.2%", says Barclays.

PCE figures will be published the same day and a 1.3% y/y reading is anticipated in the core component and a 0.2% in the headline. Finally, 3Q GDP should continue pointing to a healthy consumer by reaching a 3.5% q/q annualised rate and a 1.5% increase in the headline.