Daily Currency Update

USD - US Dollar

In our view, it appears that today's Federal Open Market Committee (FOMC) meeting will convey that immediate action is not being considered. Recent remarks by Federal Reserve's Christopher Waller have laid the groundwork for today's discussions. He recognized improvements in inflation and the job market but emphasized the need for sustained positive trends in inflation before the Fed contemplates rate cuts. Furthermore, he indicated that any future rate cuts would not be as swift or extensive as previously seen. With recent U.S. data, including the December JOLTS report showing an increase in job vacancies, there's little basis for today's FOMC announcement to lead to expectations of more than the currently anticipated 130 basis points in rate cuts for this year, potentially benefiting the dollar. Additionally, the announcement of the U.S. Quarterly Refunding today could introduce some market fluctuations. A miscalculation in market demand for longer-term Treasury securities could elevate bond yields, adversely affecting high-performing tech stocks, while potentially bolstering the dollar against the major currencies.

CAD - Canadian Dollar

The CAD is maintaining its position in the low 1.34 range as the Federal Open Market Committee (FOMC) meeting approaches. Today, the spot fair value has slightly decreased to 1.3467, indicating a slight overvaluation of the CAD, though the model acknowledges a positive shift in the factors influencing the CAD over the last week. A favorable risk sentiment is bolstering the CAD, while the narrowing spreads between US and Canada, especially in the 5-year and 10-year segments of the bond market, are providing additional support for the CAD. The staying power of the CAD's recent gains will largely depend on the outcome of today's Fed policy meeting. Observe USD/CAD trends.

EUR - Euro

In the FX options market, there's a 71% chance that EUR/USD will stay within 1.06-1.12 for the first quarter, which seems broad given the current market calm. We're aiming for 1.08 by quarter-end. Recently, EUR/USD rose from the 1.0800 mark after better-than-expected Eurozone GDP data and surprising Spanish inflation figures for January, with core inflation exceeding forecasts. Upcoming CPI data from France and Germany could influence expectations for an ECB rate cut in April. Given these factors, EUR/USD is likely to lean towards the lower side as we approach Friday's US employment figures, potentially testing the bottom of the 1.0800-1.0875 range before the FOMC meeting