Daily Currency Update

USD - US Dollar

The USD is weakening today despite Fed Chairman Powell's cautious comments yesterday, indicating that inflation concerns prevent the Fed from ensuring price stability. Powell suggested that interest rates might stay unchanged for a while, aligning with market skepticism about potential rate cuts this year. December swaps show only a 40 basis point rate cut likelihood by year-end. Powell's and other Fed policymakers' remarks yesterday largely reflected existing market sentiments. Today lacks significant data but includes speeches from Fed members Mester and Bowman after hours, with the Fed Beige Book releasing at 14ET.

CAD - Canadian Dollar

The CAD is slightly stronger against a generally weaker USD today, though it trails many G10 peers and other commodity-based currencies. Despite a positive risk mood, BoC Governor Macklem noted that while inflation is heading in the right direction, rates won't ease until inflation sustainably reaches 2%, indicating this hasn't been achieved yet. Market swaps are hesitant to fully price a 25bps rate cut for June, but expect slightly more than a quarter-point cut in July. Macklem highlighted that while BoC and Fed policies can differ, there are limits influenced by the flexibility of the exchange rate. The federal budget met expectations, with the capital-gains tax increase drawing significant attention and potentially impacting business sentiment and investment in Canada. Observe USD/CAD trends. 

EUR - Euro

The EUR is slightly up today, maintaining support around the low 1.06 range despite the USD's strength. Several ECB officials, including President Lagarde, are scheduled to speak. Lagarde reiterated yesterday that while the EUR isn't a direct target, its significant fluctuations could impact inflation. The final Eurozone CPI for March remains unchanged at 2.4%.

GBP - British Pound

Sterling is stronger today and outperforming other major currencies after the UK's CPI for March exceeded expectations, rising 0.6% month-on-month compared to the anticipated 0.4%. Both headline (3.2%) and core inflation (4.2%) rates slowed from February but were higher than expected, leading to a reduction in expectations for BoE rate cuts. Market expectations now show only 17bps of easing anticipated by August, down from 25bps last week.