Daily Currency Update

USD - US Dollar

The USD is slightly firmer today, with major currencies trading mixed against it. US yields edged higher overnight, but the 10Y yield has only regained a third of yesterday’s drop due to signs of a slackening labor market. The 2Y Treasury yield is still 22-23bps below last week’s peak near 5%. Lower short-term yields and narrower spreads versus core currencies will keep the USD index under pressure, especially if this morning’s data is weak. Expect the USD index to be capped around 104.50/60.

CAD - Canadian Dollar

Today's BoC decision is more finely balanced than anticipated, despite many banks calling for a rate cut. Market pricing shows 20bps of easing expected today and 65bps by year-end. There are strong arguments for both cutting and holding rates. Inflation is decelerating, suggesting a cut, but the economy is performing well, wages are high, and the labor market is strong, which could argue for holding rates. Uncertainty over Fed policy adds to the complexity. July may be a more opportune time to ease. If a cut happens today, the CAD may ease slightly, but the reaction will depend on the Bank's outlook. A hold with signals of a future cut will keep the CAD steady within the 1.36/1.3750 range. Observe the USD/CAD trend.     

EUR - Euro

Final Eurozone Services and Composite PMI data for May were revised down slightly (a tenth in both cases to 53.2 and 52.2 respectively). German data were revised higher while French numbers were revised lower and Italian data weakened a little from April. Overall, the PMIs look relatively solid, with some decent details which underpin the outlook for improving growth momentum in the coming months. The EUR has edged marginally lower on the day but remains generally well-supported even as investors anticipate the start of the ECB easing cycle starting tomorrow.

GBP - British Pound

Sterling is stable. Final UK May PMI data had minimal revisions: Services remained at 52.9, and the Composite index rose to 53.0, marking six months of expansion. Last night's debate between Sunak and Starmer was seen as either a tie or a win for Starmer, with Sunak's performance unlikely to affect Labour's strong lead in polls.