Daily Currency Update

USD - US Dollar

The dollar bounce yesterday was the result of some position-squaring and below-consensus data, while the still unstable risk environment caused by recessionary fears and the US debt ceiling stalemate keeps creating a breeding ground for more defensive positions in FX. On the data side, jobless claims surprised on the upside and PPI to the downside yesterday – both adding to rate cut bets – while today’s focus will be on the import price index and the University of Michigan inflation and sentiment gauges. FOMC member Mary Daly is scheduled to speak this evening.

CAD - Canadian Dollar

The greenback jumped almost 0.9% yesterday against the Canadian dollar, the most in two months. The 2.3% slide in WTI appeared have weighed on the Canadian dollar amid the broader US dollar gains. The US dollar briefly above CAD 1.3500. The USD/CAD is likely to be driven by the USD and broader market themes.

EUR - Euro

EUR/USD continues to follow primarily USD dynamics, and a quiet calendar in the eurozone (final CPI reads are not normally market-moving) means this should continue to be the case today. For now, the USD appreciation was not enough to trigger a break below 1.0900 in the pair, but the lack of some encouraging news on the US debt ceiling story means – in our view – that 1.0900 will hardly prove to be a sturdy support for much longer. On the ECB side, we’ll hear from Germany’s Governing Council member Joachim Nagel. ECB speakers have had a limited impact on the euro after the latest ECB meeting and this should not change for now.

GBP - British Pound

As we expected, the Bank of England’s 25bp rate hike did not have any major implications for GBP. The drop in GBP yesterday was almost entirely due to the USD rally and was in line with the move in other dollar crosses. The BoE retained its flexibility and kept the door open for more rate hikes if inflation proves persistent. While we don’t exclude one final June hike, most analysts suggest that we have reached the peak of the BoE tightening cycle as inflation will start to rapidly decelerate this year. From an FX perspective, there aren’t many convincing reasons to call for GBP underperformance against its main peers in the near term.