Daily Currency Update

USD - US Dollar

To start the day, the USD is experiencing a decline against most major currencies, while the EUR is gaining strong support due to month-end demand and the ECB President Lagarde's hawkish comments. Currently, there is slightly more confidence in the market regarding the possibility of the ECB tightening in July (with 22 basis points priced in) compared to the Fed (18 basis points), indicating that the USD will likely struggle to improve in the near term. Stock markets are showing a mixed performance, while US futures are indicating minimal gains at the moment. The majority of major bond markets are down, and crude prices have dropped by nearly a dollar today. The upward trend in US yields that started on Monday has continued a bit further this morning. Today's US data releases include Durable Goods, housing data, Consumer Confidence, and the Richmond Fed Manufacturing Index.

CAD - Canadian Dollar

The CAD briefly hit a new high against the USD overnight but later stabilized as it awaits important data. Expected May CPI data suggests a 0.4% monthly increase and a 3.4% rise over the year. While policymakers may be somewhat pleased with the slower annual inflation rate, monthly price gains remain significant, and progress in core inflation, particularly the core median measure, has been sluggish. Although the core median measure is predicted to slightly decrease to 4.0% in May from April's 4.2%, other indicators indicate a potential rebound in core pressures. These nuances may not be immediately evident in the headline release, meaning any initial CAD depreciation due to a cooling headline figure could be short-lived and potentially reversed if elevated core measures persist. The CAD shows positive trends against other currencies, suggesting the possibility of further broad gains in the near term. Observe the USD/CAD trends.

EUR - Euro

During the central bank's policy forum, ECB President Lagarde reaffirmed a hawkish stance on interest rates, emphasizing that unless significant developments arise, the bank intends to tighten rates once again in July. She also expressed skepticism about policymakers being able to confidently declare that peak rates have been reached. This deliberate approach leaves the door open for the rate cycle to potentially extend beyond July. The ECB's clear commitment to a hawkish policy, without pausing or prolonging rate hikes, stands in contrast to the Fed's approach and is expected to bolster the EUR in the weeks ahead.

GBP - British Pound

There was positive news regarding inflation in the UK. The British Retail Consortium's price inflation gauge decreased to 8.4% year-on-year in June, marking a decline from May's record level of 9%. This significant drop in the inflation measure represents the largest monthly decrease since price growth began accelerating in 2021. Basic food price inflation also eased for the second consecutive month. Despite these developments, expectations from the Bank of England (BoE) have remained largely unchanged, and markets still anticipate approximately 44 basis points of tightening at the August meeting. As a result, the British pound is expected to find support during price declines, as the possibility of further BoE tightening remains substantial.