Daily Currency Update

USD - US Dollar

The FX market remains influenced by a cautious attitude towards risk. The Asian market sentiment and commodity prices were negatively affected by reports of weakened Chinese trade data. This negativity was compounded by yesterday’s downgrade of credit ratings for US regional banks by Moody's. Notably, Chinese exports saw a significant year-on-year decline of 14.5% in July, with imports also falling by 12.4%, surpassing expectations. This has led to a 0.5% decrease in US equity futures. Conversely, there has been a strong rally in bond markets, resulting in a decline of 9-10 basis points in US Treasury yields and 11-13 basis points in European bonds. The US dollar has experienced a widespread increase in value, partially reversing the losses incurred after the release of the less impressive US jobs data on Friday. However, potential gains in the US index might encounter resistance around the upper 102 range, assuming that the overall risk environment doesn't worsen significantly. Economic data scheduled for today includes US and Canada trade data, along with the US Wholesale Inventories report. Furthermore, a USD42 billion auction of 3-year notes by the Treasury is also taking place today, marking the first bond auction subsequent to the Fitch credit downgrade.

CAD - Canadian Dollar

Lackluster enthusiasm for risk and declining commodity prices continue to exert downward pressure on the Canadian dollar (CAD). Despite a relatively calm trading session yesterday’s holiday, the lack of substantial CAD support is evident in today's trading behavior. The weakening of the CAD seems to surpass what can be entirely attributed to the underlying economic fundamentals. Various models indicate that the fair value should be notably lower than the current exchange rate (slightly below 1.31 this morning). However, a substantial improvement in the overall market sentiment will be necessary to foster a positive shift for the CAD at this juncture. Observe the USD/CAD trends.

EUR - Euro

The unexpected imposition of a windfall tax by the Italian government on bank earnings generated from elevated interest rates has taken the market by surprise. This has contributed to an overarching atmosphere of prudence prevailing in the markets today. Interestingly, the EUR stands out as one of the more resilient currencies during this trading session, experiencing a 0.3% decline against the generally robust USD. The USD's strength is clearly stemming from the broader decline in market sentiment. If the Italian government's move negatively influences local banks and consequently impacts the enthusiasm of US investors, who have shown a substantial interest in European stocks as of late, there is a possibility of longer-term adverse effects on the EUR.

GBP - British Pound

The British pound is down 0.5% against the US dollar, primarily as a response to external events. Noteworthy UK data releases are absent for the day. An advisory from BoE economist Pill suggests that UK food prices might not fully recede from their notably elevated levels. The depreciation of the pound can be attributed to both general strength in the US dollar and a slight reduction in yield spreads favoring the pound against the USD on the current day.