Daily Currency Update

USD - US Dollar

The USD is displaying a slight decline in trading performance today, following a streak of four consecutive days of gains that brought the DXY index to test its 200-day moving average. This benchmark has held steady for the past three days, and if today's session ends with a lower value, it would present a more evidently negative outlook. However, the strong US Retail Sales data from yesterday further contribute to the indications that the US economy is maintaining a satisfactory pace of growth. According to the Atlanta Fed’s Q3 GDPNow index, it appears that growth is on track to surpass 5% for the current quarter. While it is still quite early to make concrete predictions, the consensus estimate suggests growth of around 0.7% for Q3. Nevertheless, the ongoing robust growth in the US is somewhat overshadowed by persistent inflation pressures in Europe, which were once again evident today. This situation implies a leaning toward the possibility of interest rates remaining elevated in the US, while heading even higher in Europe over the next few months. Forecasts point to a broader weakening of the US dollar throughout the second half of the year, as the US policy cycle reaches its peak and markets start anticipating the commencement of rate reductions. Notable US data releases scheduled for today include July Starts/Permits at 8:30 AM ET, Industrial Production at 9:15 AM ET, and the July FOMC Minutes at 2:00 PM ET. During the latter release, there might be indications of differing perspectives on the direction of rate policy emerging.

CAD - Canadian Dollar 

Canadian short-term interest rates saw a slight uptick with inflation data surpassing expectations. This caused the gap in interest rates between the US and Canada to narrow, providing the CAD with a partial counterbalance to the negative effects arising from weaker stock performance observed yesterday. Although there was only a marginal adjustment in the Bank of Canada's BoC outlook for the upcoming policy decision in September, the market's outlook for rate hikes shifted to imply 7 basis points (bps) of tightening, up from around 5bps prior to the release of the data. The inflation figures indicated a strengthening in core price growth and a sustained broad increase in prices. These trends could raise concerns for policymakers, as they await signs that the forceful policy tightening measures implemented thus far are influencing price patterns. Despite these developments, the CAD continues to struggle in its efforts to gain strength. It has exhibited minimal changes in value during the trading session, particularly in relation to a generally weaker USD. As for today’s data releases, projections suggest that July's Housing Starts will likely decrease to a rate of 244,000 from June's 281,400. Observe the USD/CAD trends.

EUR - Euro 

In the second quarter, the Eurozone’s GDP experienced an initial increase of 0.3%, and there was a more robust than predicted 0.5% month-on-month growth in Industrial Production for June. However, the fundamental trends within the industrial sector continue to exhibit a lackluster performance, and the decelerating growth in China is expected to adversely affect the outlook for exports. Despite the encouraging domestic data, the yield spreads between the Eurozone and the United States have slightly widened by 2 to 3 basis points during the session, exerting a mild downward pressure on the EUR.

GBP - British Pound

The GBP stands out as a leading performer this morning, propelled by the unveiling of consumer price index (CPI) figures that exceeded earlier predictions. In July, there was a monthly drop of 0.4% in headline prices, juxtaposed with a yearly surge of 6.8%. Meanwhile, core inflation maintained its stability at 6.9% throughout the year in July. The combination of decelerating inflation progress and robust wage growth is renewing anticipations that the Bank of England (BoE) might find it necessary to continue raising interest rates beyond the previously projected September timeframe. December swaps are indicating an expected total increase of 65 basis points in tightening measures going forward.