The USD is mixed to lower as the month ends, influenced by US data reports. US 10Y yields rose slightly from the overnight low, boosting the USD in early Asian trade. However, the USD has weakened during the European morning, while the EUR strengthened due to higher-than-expected Eurozone CPI data. Soft US core PCE deflator data may further pressure the USD and US yields. On consensus data is unlikely to move markets significantly, with Fed rate cut expectations already priced in, predicting the first full 25bps cut by December.
The CAD is edging higher, nearing fair value (1.3614) ahead of March and Q1 GDP data. These are the last major data releases before next week's BoC policy decision. Industry-level output is expected to be flat for the month, but April's guidance looks positive. Canada's IFSD suggests a small upside risk to the consensus GDP estimate. Strong data may influence market pricing for a BoC cut, though June still seems premature. Firm Canadian data and a downside miss for US PCE data could further strengthen the CAD. Observe the USD/CAD trend.
EUR gains accelerated in early European trade after Eurostat reported higher-than-expected Eurozone inflation for May (2.6% Y/Y, up from 2.4% in April). Core prices rose to 2.9% from 2.7%. Local bond yields firmed, and while a quarter-point cut for next week's policy decision is fully priced in, markets are now seeing a 60% chance of a follow-up move in September.
Sterling saw a mild lift during the European session, mainly driven by EUR gains rather than mixed UK data. The Nationwide’s house price index rose 0.4% in May, while April's Net Consumer Credit was weaker than forecast, and Mortgage Approvals met expectations.
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