Dollar dropped sharply overnight in response to much weaker than expected ISM non-manufacturing composite. While Fed fund futures still suggest 18% chance of a September hike, a string of weaker than expected data should have put it off the table. Meanwhile, futures are still pricing in 52.4% chance of a December hike. San Francisco Fed president John Williams said that the economy was in "good shape". He's also optimistic and expects unemployment rate to fall to 4.5% in the coming year and inflation to climb back to 2% target in a year or two. Meanwhile, he emphasized that it "makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later." Technically, dollar's sharp fall suggests that last week's rebound was over and more downside is likely against Euro, Yen and commodity currencies.
Bank of Canada rate decision will be the main focus today and it's widely expected to keep key interest rate unchanged at 0.50%. Canadian GDP dropped -1.6% annualized in Q2 as some oil production was brought to a halt by wildfires in northern Alberta. But most economists expected a strong rebound in Q3. That should also be helped by recent rebound in oil prices. At this point, the general consensus is that BoC would hold fire for a long period of time, at least until the end of 2017 and wait for prior stimulus to work its way through to the economy.
Elsewhere, Australia GDP grew 0.5% qoq in Q2. New Zealand manufacturing activity rose 2.2% in Q2. UK industrial and manufacturing production will be the main focus in European session. Sterling has been boosted by a string of strong data recently and we'll look for more strength in the pound from the data. UK will also release NIESR GDP estimate. German will release industrial production and Swiss will release foreign currency reserves. Canada will release Ivey PMI. US will also release Beige Book economic report.