Daily Currency Update

USD - US Dollar

US banking stress continues to simmer as seen by a further rise ($7bn) for the Fed's Bank Term Funding Programme and speculation over First Republic's future. Adding to this defensive stance is the view that the Fed may not be quick to cut rates because of sticky inflation. This brings us to US price data. Yesterday, the 1Q23 US GDP figures revealed a firmer-than-expected core PCE price release. That means today's March core PCE figure could surprise the consensus 0.3% month-on-month estimate to the upside and argues that inflation is remaining more stubborn than feared. Today we will also see the 1Q Employment Cost Index. This is expected at 1.1% quarter-on-quarter and again will be a key input into next week's Fed's decision. The dollar has shown great sensitivity to this price data recently and any upside surprise could trigger further dollar strength against commodity currencies. European FX should remain a little more insulated given a hawkish ECB and some modest improvement in eurozone GDP data.

CAD - Canadian Dollar

Canada reports February GDP figures. After expanding by 0.5% in January, activity is expected to have expanded by 0.2% in February. After pausing for the past two sessions, the US dollar is taking another leg higher against the Canadian dollar today. It approached CAD1.3670, a new high for the month. Despite a strong beginning in April, the Canadian dollar's outperformance story was ultimately unsuccessful, and its value has returned to its usual range. The US dollar has experienced six consecutive months of fluctuating gains and losses within a narrow trading band, indicating a significant absence of overall direction in the market. Observe the USD/CAD trends.

EUR - Euro

EUR/USD is consolidating not far from 1.10 as sticky US price data provides something of a pushback to ECB hawkishness. In focus today will be European 1Q23 GDP data. France has already released an on-consensus 0.2% QoQ reading - with the same expected for both Germany and the eurozone a little later. In addition, we will see German April CPI data - expected at an unchanged 7.8%. We doubt this will really change the market's current pricing of a 30bp at next Thursday's ECB meeting. EUR/USD could remain stuck around this 1.10 area.

GBP - British Pound

GBP/USD is starting to trade in tight ranges under 1.2500 as US inflation data will keep Fed hawks preoccupied. However, Pressure does look to be building for a move higher later in the year. In the UK, the mood music is slightly improving with business confidence edging higher. Warmer relations with the EU seem to be helping the tone. Today the focus will be on US and European data - which can probably leave GBP/USD in a 1.2400-1.2525 range.