Daily Currency Update

USD - US Dollar

The US dollar is trading mixed with very limited gains and may not prevent a weak performance for the week. In May, rising US interest rates, positive economic data, and hawkish comments from the Federal Reserve influenced the USD. However, in June, there are signs of a potential reversal in USD gains. The upcoming week could further pressure the US dollar as the headline US Consumer Price Index (CPI) is expected to moderate to around 4%, possibly reaching 3% in the near future. Core prices are also expected to decrease. The Federal Reserve will need to carefully manage interest rates while keeping the option for future tightening open. Given guidance from senior members of the Federal Open Market Committee (FOMC) suggesting an unlikely rate hike this month and market expectations indicating limited chances of a hike, policymakers have no incentive to surprise investors.

CAD - Canadian Dollar

The CAD is performing moderately to start the day. Yesterday's Economic Progress Report speech by BoC DG Beaudry had little impact on the markets. The speech largely reiterated the messages from the policy statement, expressing surprise at demand resilience and concern about rising core inflation. However, Beaudry hinted at the possibility of a "new environment" with structurally higher interest rates. Despite this, the CAD has shown some improvement overnight, approaching the low 1.33 zone in anticipation of the May employment report. The report is expected to show a solid gain in Canadian jobs (consensus of 21.3k), with the unemployment rate ticking up to 5.1%. The tight labor market and wage growth incompatible with the Bank's inflation goals suggest that this week's rate hike may not be the last in the cycle. Positive data will strengthen the CAD, while significantly weaker data may slightly soften the CAD. Observe the USD/CAD trends.

EUR - Euro

EUR/USD is slightly down for the session, but overall, the EUR maintains a positive outlook as investors anticipate the upcoming ECB policy decision. There is a strong market expectation of a rate hike next week, and investors are heavily betting on the tightening cycle continuing until July. However, the enthusiasm for tightening bets beyond that has decreased. A 0.25% rate hike accompanied by hawkish messaging would support the EUR. The significant widening of short-term spreads between the eurozone and the US observed in May has eased and partially reversed, which will provide support for the EUR. However, further spread compression is necessary to significantly boost the EUR from its current levels.

GBP - British Pound

The British pound is experiencing slight weakness in trading today, without any significant new developments such as data releases or comments from the Bank of England to influence market sentiment. Instead, it appears that the pound is consolidating its position in anticipation of a series of upcoming data releases next week, including employment figures, wage data, and economic growth statistics. These data points will provide further insights into the policy outlook beyond the Bank of England decision scheduled for June 22nd (where a 28 basis points increase is priced in). Overall, it has been a positive week for the pound, reaching a four-week high earlier today, which could attract trend chasers and momentum traders seeking opportunities for the GBP to retest the peak reached in early May.