Daily Currency Update

USD - US Dollar

The dollar index is now around 3% below its peak of mid-March. Actions by the Fed to address dollar money market stress have allowed investors to (correctly) draw the conclusion that tighter credit conditions make a US hard landing and a sharp Fed easing cycle more likely - a cleanly bearish story for the dollar. Today sees the release of US Jolts Job Opening data for February. A sharp decline here would probably be read as a mildly bearish dollar factor - adding support to the 2H23 Fed easing cycle.

CAD - Canadian Dollar

The Canadian dollar is higher for the seventh consecutive session. The greenback was testing the CAD 1.38 level as recently as March 24 and now it is testing the CAD 1.34 area. The combination of the increased government spending, higher oil prices and a firm S&P 500 appear to be spurring a short-covering rally in the Canadian dollar. For today, there are not any major domestic drivers, leaving the CAD to trade on broader market themes. Observe the USD/CAD trends.

EUR - Euro

EUR/USD remains well supported and not far off recent highs at 1.0900/0930. It seems investors are happy to differentiate between the health of the banking sectors in the US and Europe. Calming tensions in US money markets is allowing for a refocus on narrower EUR/USD rate differentials - having narrowed around 50bp since early March. There is not much Eurozone data today, but a further decline in PPI - expected at 13.3% YoY in February - would be welcome. Overall, we suspect that the market will be reluctant to chase EUR/USD above 1.10 yet given concerns about the regional US banking system. That said, a higher EUR/USD certainly looks the direction of travel for the rest of the year.

GBP - British Pound

The pound continues to perform well and is certainly taking advantage of a weaker dollar. GBP/USD is now approaching strong resistance in the 1.2450/2500 area. These levels could be tested today should the US data come in on the soft side. Domestically, the market will be interested in a speech from Bank of England Chief Economist Huw Pill. Should Pill choose to play up the welcome signs of easing constraints in the UK labor market, expectations of future BoE tightening may dwindle and the pound should weaken.