Daily Currency Update

USD - US Dollar

The momentum of the dollar continues to significantly influence overall foreign exchange (FX) movement. The longstanding market saying, “don’t fight the Fed,” is particularly apt. Currently, DXY-weighted 2-year spreads are lower than they were a month ago when the index was trading around 2% lower. DXY-weighted 10-year spreads have seen a widening and seem to be presently fueling broader gains in the USD.  Last night, Fed hawk Kashkari mentioned anticipating one more rate increase this year. There's a high likelihood for continued, albeit possibly short-term, strength in the USD, propelled by existing momentum. However, there’s also a chance that shift in positioning and sentiment might leave the markets susceptible to a drop in the USD should there be any unfavorable fundamental developments—such as a couple of weak data prints—or even a possible US government shutdown. On Monday, Moody's remarked that a US government shutdown would adversely affect the US’ credit rating. This morning, there are indications that moderate Republicans may collaborate with Democrats to minimize the duration of an increasingly probable shutdown. The price movement overnight is indicative of weakened stocks and a strong USD. In the short term, price indicators are suggesting a potential temporary pause in the rise of the USD.

CAD - Canadian Dollar

Spot edged up to test 1.35 in European trade after Asian dealing took the USD lower to test the mid-1.34 area. Weak risk appetite and some further drift in crude oil prices are headwinds for the CAD, in addition to the general strength in the USD. The CAD is a moderate underperformer on the session so far among the majors but it has been showing resilience  against its major currency peers recently— pressuring the GBP, EUR and JPY and also gaining on the MXN which is showing signs of reversing its recent run higher. Observe the USD/CAD trends.

EUR - Euro

The EUR remains relatively stable today, hovering around the 1.06 mark after a brief decline in early European transactions. There have been no data reports emerging from the Eurozone this morning. Remarks from ECB policymakers reinforce the projection of no subsequent rate increases (Muller) but emphasize that the central bank is not hastening to deliberate rate reductions (Simkus).

GBP - British Pound

Sterling is weak but has recovered somewhat from its initial lows. The GBP’s movements are mostly in line with those of its major currency counterparts in what is otherwise nondescript trading. The final Q2 GDP, along with credit and money supply data, are scheduled to be released at the week’s end. The national accounts data are anticipated to validate a growth of +0.2% Q/Q, marking the most significant increase in output since the commencement of the previous year. However, a deceleration in growth to +0.1% is expected in Q3.