Daily Currency Update

USD - US Dollar

The US dollar is experiencing mixed to slightly stronger trading against its major currency counterparts in a relatively calm market environment. The upcoming Easter holiday may be contributing to the subdued activity, but the USD still appears to be weak and susceptible to further losses. The recent release of second-tier US economic data, which included Factory Orders revisions and JOLTS numbers, did not have a significant market impact but added a bit of pressure on the USD. This reaction highlights investors' sensitivity to the outlook for Fed policy and, increasingly, how quickly US rates will decrease. Narrowing interest spreads are negatively affecting the USD overall, indicating some downside risk (1-1.5%) from current levels. The ADP private sector jobs report for March is due at 8:15 ET, with markets expecting an increase of 210k. Trade data will be released at 8:30 ET, followed by final Services PMI data at 9:45 ET, and the ISM Services data at 10:00 ET, which is expected to show minor slowing in growth. Additional weak US economic reports today may further pressure the USD lower ahead of Friday's NFP data release.

CAD - Canadian Dollar

The Canadian dollar (CAD) has not been able to gain further ground above the 1.34 level despite a generally weaker US dollar this week, resulting in a slight decline from this week's highs. There have been no major changes, as the US/Canada interest rate spreads remain close to recent lows, and crude oil prices remain strong. The CAD may be under some pressure due to slight weakness in US equity futures, but based on its current valuation, the CAD still appears relatively undervalued compared to fair value estimate. Additionally, seasonal trends are favorable for CAD in April, and the broader headwinds affecting the USD suggest limited potential for USD/CAD to rally at this time.

EUR - Euro

During quiet overnight trading, the EUR remained relatively unchanged. However, the fact that the currency is consolidating above the high from late February/early March suggests that there is strong underlying support for the EUR. In February, German Factory Orders rose by a significant 4.8%, while French Industrial Production increased by 1.2% in the same month. Although the final Eurozone Services and Composite PMI data for March indicated slightly slower growth, overall data trends in the Eurozone support the notion that the economy has avoided a recession. This positive development may allow the ECB to raise rates slightly and potentially maintain restrictive policies for a longer period.

GBP - British Pound

The final data for UK Services and Composite PMI showed little change from the preliminary data, with the Services activity revised up by a tenth to 52.9. This development supports the notion that the UK economy managed to avoid a recession in the early part of the year, even though growth trends remain sluggish. Prospects for a rate hike are favorable for GBP. The market is currently pricing in an 80% chance of a 25bps increase in the BoE policy rate at the May 11th meeting, but only modest declines in the policy rate are expected for the remainder of the year.