Daily Currency Update

USD - US Dollar

Yesterday’s release of the Fed's Beige Book ahead of the 3 May FOMC meeting showed no material weakening in activity after the failures of two US banks in early March. Several Fed districts noted tighter credit conditions but not any significant weakening in activity. The report should not interfere with the market's 89% probability pricing of a 25bp Fed hike on 3 May and does not seem to provide much fuel yet to the bearish dollar narrative. For today, all the Fed speakers are after the European close and the market will have second-tier data to digest including weekly initial jobless claims and existing home sales.

CAD - Canadian Dollar

The US dollar is edging higher against the Canadian dollar. It is rising for the fourth session in the past five and reached a high of 1.3480 overnight.  The next technical hurdle is seen in the CAD1.3500-20 area. Inflation data fell in line with expectations earlier this week slipping to 4.3% in the March year. The “no rate cut this year” messaging from the BoC since last week’s policy decision seems to be resonating with markets; swaps are pricing in much less risk of a rate cut in the coming months, with the Dec implied policy rate priced around 4.40%. Observe the USD/CAD trends.

EUR - Euro

EUR/USD’s attempt to correct lower proved short-lived yesterday despite broad risk-off and higher rates across the board. Unchanged Eurozone CPI for March was shrugged off as the domestic macro news flow is set to pick up towards the end of the week. Friday’s flash PMIs will be eagerly awaited for insight and direction. EUR/USD rate spreads still remain at the mercy of a reality check with regards to the Fed prospects, as we continue to see any rate cuts embedded for the end of the year as premature. This leaves EUR/USD’s balance of risks tilted to the downside for the near term.

GBP - British Pound

Yesterday's release of higher-than-expected March UK inflation has seen the pricing of the Bank of England cycle push up to a new cycle high. The market now prices the current 4.25% Bank Rate being taken close to 5.00% by November. The BoE may not choose to push back against this pricing until the 11 May rate meeting - where a 25bp hike looks likely. Tomorrow we see the release of March retail sales and the April PMI numbers - which could shed light on how the economy is coping with higher rates. GBP/USD could creep back to 1.2500 should any of today's US data add to some early indications of a slowing US economy.