Daily Currency Update

USD - US Dollar

The USD begins the week on a cautious note as its surge in the DXY halts near the 105 mark. The dollar's progress from the previous week hinted at a possible prolonged rally, particularly as other currencies with less promising growth outlooks were sidelined. The US Federal Reserve's sustained high policy stance coupled with escalating oil prices have given the dollar a boost. This week, attention is centered on the US Consumer Price Index (CPI) data on Wednesday and the European Central Bank (ECB) policy announcement on Thursday. It's anticipated that headline prices for August will rise (+0.6% M/M and +3.6% Y/Y) due to increased gas costs, while core prices are predicted to maintain a steady increase of 0.2% monthly – marking the third consecutive month. This consistent monthly rate aligns more with stable pricing, reinforcing the Fed's belief that they are successfully combating inflation. It's worth noting that the Wall Street Journal's Fed analyst, Timiraos, mentioned a significant change in the Fed's rate position, hinting at a potential pause in their upcoming meeting. On the other hand, the forthcoming ECB policy announcement on Thursday seems less daunting for the dollar, given the undermining of rate hike expectations by weak growth figures. Nonetheless, ECB policymakers, with their eyes on inflation, remain steadfast. Knot, a policy hawk, suggested last week that the markets may be undervaluing a potential rate hike. If US inflation remains tame and the ECB enacts a 25bps rate hike on Thursday, the dollar might face some challenges.

CAD - Canadian Dollar

Strong employment statistics on Friday provided a boost to the CAD. However, the extensive short-term spreads between the US and Canada continue to place a burden on the CAD. Despite steady oil prices, they aren't offering significant support to the CAD, especially since it has declined even with generally stable commodity prices throughout August. Today, the CAD has gained slightly against a somewhat weaker USD. Still, it trails behind its commodity counterparts and is primarily influenced by external factors, such as US data and yields, for the time being. Observe the USD/CAD trends.

EUR - Euro

The EUR has slightly increased, aligning with the overall weaker USD sentiment today. However, the spotlight for investors is clearly on the upcoming ECB policy decision, anticipated to significantly influence the EUR's trajectory. While there was a previous market anticipation of a 1/4 point increase on Thursday, it has dimmed due to subdued Eurozone activity figures. Nonetheless, policymakers are zeroing in on inflation, which has remained consistent at approximately 5% for both headline and core figures. The probability of a 25bps hike might be greater than what the current market expectations (around 10bps) suggest for Thursday. If the ECB decides against an increase this week, their communication might still lean towards a more hawkish stance.

GBP - British Pound

Sterling is showing a slight increase in today's session, mirroring the overall trend in major foreign exchanges for the day. Data from the UK, set to release tomorrow (covering employment and wages), might offer a deeper understanding of the Bank of England's (BoE) policy intentions for this month. Wage growth continues to be persistent, and data for July is projected to match June's rate of 8.2%. It's worth noting that, excluding bonuses, average weekly earnings previously saw a record increase of 7.8%. Current market predictions indicate a high likelihood (around 80%) of a 25bps rate hike on September 21, with some speculating that the peak in rates could even reach a higher point, possibly 5.75%.