Daily Currency Update

USD - US Dollar

The US dollar is displaying weakness compared to major currencies. The USD Index is currently trading slightly below 102, marking its lowest level since mid-May and indicating a likelihood of further declines. While the USD is relatively weak against the euro, it briefly reached a seven-month high against the struggling Japanese yen. Today, there is a comprehensive set of US economic data to be released, along with speeches from Federal Reserve representatives. The weekly claims data will be closely examined, as another high reading would be difficult to dismiss as a result of isolated factors. Chairman Powell is scheduled to testify before the Senate, which is expected to be a repetition of yesterday's testimony, offering limited additional insights into the future outlook. Throughout the day, there will be speeches from Bowman (voter), Mester, and Barkin (nonvoters). Look for the dollar to remain rangebound.

CAD - Canadian Dollar

Despite the subdued risk environment and a decline in crude oil prices, the Canadian dollar (CAD) is performing relatively well today. The CAD has gained momentum as market participants anticipate the possibility of the Bank of Canada (BoC) adopting a slightly tighter monetary policy in the coming weeks. According to the minutes from the BoC's June meeting, policymakers believed that inflationary pressures warranted an immediate interest rate hike. Although the deliberations summary did not provide explicit hints about the immediate policy outlook, officials acknowledged that second-quarter economic growth was surpassing expectations due to resilient consumer demand, supported by high savings and a revived housing market. The strength of the CAD seems to be justified by the consistent improvement in fair value estimates for the current spot exchange rate (currently at 1.3085). Observe the USD/CAD trends.

EUR - Euro

In the short term, the upward movement of spot gains beyond the 1.10 level seems to be influenced by sentiment and/or momentum. There is not much fresh information this morning, except for some mildly positive French business sentiment data, to justify the strengthening of the euro (EUR). Yield spreads remain relatively stable, with a slight narrowing trend across the yield curve. However, there has been a notable presence of hawkish views within the European Central Bank (ECB) recently, indicating strong confidence in the policy outlook. This stands in contrast to the uncertainty surrounding whether the Federal Reserve can or will deliver on the interest rate hikes implied by the dot plot projections.

GBP - British Pound

The rebound of the British pound (GBP) from levels below 1.27 observed yesterday appears to be driven solely by the anticipation that the Bank of England (BoE) will need to implement more substantial interest rate hikes beyond the initial 25 basis points (bps) in response to the unexpectedly high consumer price index (CPI) data. In the near term, a more aggressive policy action is expected to provide further a lift to the GBP. If the BoE indeed proceeds with a half-point rate hike, the gains of the GBP are likely to gather additional momentum. However, if the hike is limited to 25 bps, the GBP is likely to retreat to levels below 1.27 once again.