Daily Currency Update

USD - US Dollar

Markets are off to a steady start this week. The USD is trading mixed to slightly firmer, while stocks and bonds have edged higher in otherwise unremarkable trading. Event risks later this week, including central bank policy decisions in Canada and the Eurozone and US NFP, may keep early-week trading quiet. Despite today's firmer stocks, recent losses in US markets deserve attention. The S&P 500 peaked and reversed on May 23, indicating a potential stall and developing reversal. This time of year typically sees underperformance in stocks ("sell in May..."), though significant declines usually occur from late July to September. FX correlations with stocks are currently soft but firming, suggesting that if a sharper fall in stocks occurs, the USD may benefit as a safe haven.

CAD - Canadian Dollar

The CAD shrugged off last week's weak GDP report, primarily due to the downside miss in US Personal Spending data released simultaneously. However, expectations for this week’s BoC policy decision surged, with swaps indicating an 80% chance of a 25bps cut on Wednesday. Despite the weak headline, GDP details were stronger, with robust personal spending and business investment, although inventories dragged down Q1 GDP. Early Q2 growth indicators are positive. We maintain a "hold" view for the BoC this week, as policymakers may want more time to gauge the Fed's direction. Note that USD/CAD briefly tested the low 1.36 area before recovering to the upper 1.36s.

EUR - Euro

The final May Eurozone Manufacturing PMI was revised down to 47.3 due to weak data from Italy and a slight downward revision in France. This pressured the EUR during the European morning session, but it steadied in the low 1.08 area. The EUR may remain within its current range ahead of Thursday’s ECB policy decision, where a cut is widely expected. Guidance on the policy outlook will be crucial for the EUR's near-term direction.

GBP - British Pound

The UK May Manufacturing PMI was revised down to 51.2 from 51.3 but remains the strongest in nearly two years, indicating a slow improvement in the UK's economic outlook. Opinion polls still predict a landslide win for Labour and a poor outcome for the Tories, but markets appear comfortable with this scenario.