Daily Currency Update

USD - US Dollar

The USD traded lower due to weaker than expected ISM data yesterday and remained soft by day's end. It has rebounded slightly today on scant news, but the technical breakdown in the dollar index suggests limited upside potential and increasing downside risks. Volatility is rising, nearing the time of year when stocks typically underperform. Although higher volatility hasn't supported the USD recently, a significant jump could shake G10 FX markets. Currently, markets indicate the possibility of one to two Fed rate cuts by year-end. Weak data, especially another poor NFP report on Friday, may lead to expectations of more Fed easing. Today's data includes April JOLTS and Factory Orders, with JOLTS expected to show reduced labor demand, signaling a weakening job market.

CAD - Canadian Dollar

The CAD approached 1.36 a couple of times yesterday but is nearing 1.37 this morning. Yesterday, the CAD seemed overvalued without a clear reason and appears undervalued today, likely due to weak stocks and soft crude. Spreads are stable, and with the upcoming BoC decision, investors might be cautious with the CAD for now.  Observe the USD/CAD trend.    

EUR - Euro

The EUR briefly rose above 1.09 in early Asian trade before easing back to the upper 1.08s. It remains firm but lacks momentum to break through 1.09 ahead of Thursday’s ECB policy decision. A rate cut is expected and priced in, but markets doubt a sustained decline in ECB rates due to recovering growth, persistent services inflation, and high wage growth. How the ECB characterizes the policy outlook will influence the EUR's direction. A "hawkish" cut by President Lagarde, emphasizing caution and data dependency, would support the EUR.

GBP - British Pound

With no UK data reports today, attention remains on the general election campaign. Brexit campaigner Farage's decision to run in a safe seat is another setback for the Conservatives, as it could divert support to other Reform UK candidates. Polls suggest Labour is heading for a landslide win. Sunak and Starmer will face off in a leaders' debate on UK TV tonight.