The USD is showing mixed performance against major currencies but is gaining strength due to early losses in the EUR, which is boosting the DXY index. Market risks are providing some support for the USD, indicating limited gains for other currencies. Bond markets are weaker, with 10-year yields rising slightly, and energy prices are marginally lower. A quiet day is expected in the foreign exchange market, with only a few key events (Richmond Fed Manufacturing Index and 2-year Treasury auction results). A rise in the DXY index above 103.50 could further strengthen the USD, potentially reviving its January rally following recent stabilization.
Yesterday, the CAD fell from its highs as stocks declined, highlighting its current dependence on risk appetite. The CAD has been trading in a narrow range overnight, staying close to yesterday's low due to a subdued global risk environment. With no Canadian data reports today, trading may slow as investors focus on tomorrow's BoC policy decision. Our fair value estimate suggests an equilibrium for the CAD at 1.3525. Observe USD/CAD trends.
The EUR is trading lower at the beginning of the North American session, following a sudden and unexplained drop in European late morning trade. There were no significant data reports in Europe, with Consumer Confidence data due at 10ET. ECB policymakers are in their quiet period before Thursday's policy decision. The ECB's report noted a moderate tightening in bank lending standards in Q4.
Sterling remained mostly unchanged overnight, with moderate gains in Asia offset by declines in Europe, stabilizing around 1.27. UK government borrowing data for December showed a lower-than-expected requirement, a marginally positive aspect but not a major influencer of the pound's intraday performance.
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