Daily Currency Update

USD - US Dollar

The USD is slightly weaker today, following yesterday's gains. Risk sentiment is steadier and US yields have marginally dropped. Major currencies have made modest gains. The USD rose yesterday due to strong US Retail Sales. Today's focus might shift to weaker survey data, highlighted by the recent decline in the NY Fed's Empire Manufacturing results. This downturn, driven by weak orders, was also noted in recent ISM reports. The Philly Fed index is predicted to slightly improve, but a poor outcome could further weaken the USD. However, the USD isn't expected to drop significantly, and dips are seen as buying opportunities against major currencies. The short end of the US yield curve may be re-evaluated as markets reassess expectations for the March FOMC. Factors including higher US yields, seasonal trends, and technical indicators suggest potential USD strength in the coming weeks.

CAD - Canadian Dollar

The CAD has slightly strengthened, supported by improved risk appetite and a small increase in crude oil prices. However, challenges persist for the CAD. Recent inflation data suggests the Bank of Canada may maintain its current policy, leading to a slight reduction in US/Canada cash bond spreads. Nonetheless, weak commodity prices continue to affect Canada's trade terms adversely. Factors usually influencing the CAD are currently leaning towards a bearish outlook. Our fair value model indicates an equilibrium around 1.3550, with the USD expected to stay supported during moderate dips. Observe USD/CAD trends.

EUR - Euro

The EUR is slightly up against the USD, with a less than 0.1% increase. ECB officials are increasingly indicating a potential summer rate cut, leading to a possible repricing in ECB swaps. However, markets have only factored in about a 20% chance of an ECB March rate cut, limiting near-term pricing adjustments compared to US OIS. This situation suggests a downward bias for the EUR outlook.

GBP - British Pound

The UK housing market shows signs of recovery, with the RICS House Price Index for December improving to -30 from November's -43, its best level in a year, as demand and sales pick up. Expectations of lower interest rates later in the year are leading to more affordable mortgages, boosting market activity. However, persistent inflation, which may delay Bank of England rate cuts, could hinder this positive trend. Despite this, this week's unexpectedly high UK CPI data is supporting the GBP, particularly around the 1.26 level.