Daily Currency Update

USD - US Dollar

The dollar remains weak as markets favor Treasuries, influenced by expectations of a more dovish Federal Reserve. The first rate cut is anticipated in June 2024. Soft US home sales data has reinforced this outlook, suggesting that high rates are impacting the economy. The dollar's future movements hinge on upcoming US data, including the Conference Board Consumer Confidence index, expected to decline slightly, and the Richmond Fed manufacturing index. Federal Reserve speakers to watch include Austan Goolsbee, Christopher Waller, Michelle Bowman, and Michael Barr. Although the Fed is likely to maintain rates in December, its less hawkish tone in November and the recent decrease in rates may challenge further rate cut speculations, potentially aiding a dollar recovery.

CAD - Canadian Dollar

The CAD is trading higher by approximately 0.25% this morning well below the 1.36 level (1.3583).  The move has been driven mainly by USD weakness rather than any domestic drivers. The CAD has some key data ahead—GDP on Thursday and jobs on Friday. While US data surprises have been trending weaker, Canadian data surprises have been steadier to a little stronger than expected, squeezing the US/Canada data surprise “spread” in the CAD’s favour somewhat and providing some fundamental backing to the CAD’s recent pick up. Observe USD/CAD trends.

EUR - Euro

ECB President Christine Lagarde's comments at the EU Parliament hinted at possible changes in the ECB's bond reinvestment policy, especially regarding the pandemic emergency purchase programme (PEPP), which is currently set to continue until the end of 2024. While tighter financial conditions usually benefit a currency, the debate over PEPP reinvestment may negatively impact euro area peripheral spreads. The eurozone calendar is quiet today, but speeches from ECB members Lagarde, Pablo Hernández de Cos, Joachim Nagel, and Philip Lane are anticipated. The euro's value is expected to be influenced mostly by USD movements and Fed rate expectations, with EUR/USD unlikely to sustainably exceed 1.10, and a potential correction below 1.0900 in the near future.

GBP - British Pound

Sterling was anticipated to outperform the euro, bolstered by UK's fiscal support. The GBP could be nearing the end of its recent downtrend, as changes in risk sentiment and the diminishing impact of the UK's fiscal events become evident. Today's UK calendar is clear, but we expect insights from Bank of England’s Jonathan Haskel. Yesterday, Governor Andrew Bailey opposed rate cuts, noting positive inflation developments.