Daily Currency Update

USD - US Dollar

The USD remains strong, though it is trading off its peak against major currencies. The bullish sentiment for the USD is bolstered by remarks from various Fed officials indicating a prolonged tight policy. Furthermore, Cleveland Fed President Mester hinted at a possible rate hike later this year. Meanwhile, Atlanta Fed President Bostic, a non-voter and known dove, is scheduled to speak at 8.00ET. US 10-year yields are stable, but attempts to push through the 4.70% mark have been stymied despite four tries in the last 24 hours. The swap market still signals concerns about a potential Fed hike, with December swaps indicating a 50% chance of an increase. Although the overarching upward trend of the USD seems heightened and possibly overstretched, the evolving market dynamics imply that the USD's climb might continue.

CAD - Canadian Dollar

The CAD slump since Friday has made it the most severe three-day downturn since last November. If we consider from Friday's USD lowest point, it stands as the steepest three-day drop for the CAD since the middle of 2022. Several factors have been unfavorable for the CAD lately, with the USD/Canada spreads broadening and a drop in crude oil prices. However, the movement seems somewhat overstated. Adjusted value, considering recent shifts in primary determinants, is approximately around 1.3550 as of this morning. For the exchange rate to stabilize, this week's Canadian data needs to indicate continued growth stability. Market expectations currently show a slight increase in the likelihood of an additional BoC rate hike by the year's end (14bps) compared to the Fed, with a projected 18bps tightening by January. If these probabilities decline, the CAD might face further depreciation, even though it already appears undervalued. Observe the USD/CAD trends.

EUR - Euro

EUR/USD is trading off its overnight low, marking a fresh low in its downward trajectory, especially after a dramatic drop on Monday, ending the day at its lowest point. Statements from a Finnish ECB representative, speaking on behalf of Governor Rehn, resonated with the perspective of ECB President Lagarde. While Lagarde believes that the current rates, if sustained for a sufficient period, will impact inflation negatively, the Finnish representative mentioned that it doesn't necessarily rule out future rate hikes. Despite these comments, the EUR found it challenging to surpass the 1.05 mark. The market sentiment suggests that the peak for the ECB might have been reached.

GBP - British Pound

Mann, a rate decision-maker at the BoE, gave expectedly hawkish remarks yesterday. He cautioned that due to stronger domestic demand and inflation, UK interest rates might have to be adjusted to more restrictive levels. After voicing his dissent last month, Mann is expected to maintain his hawkish perspective in the MPC for the upcoming period.