Daily Currency Update

USD - US Dollar

The USD remains strong after its gains yesterday. US Treasuries are facing pressure following the Fitch news, and the US Treasury refunding announcement, which indicated a significant increase in supply over the upcoming year. This surge in supply was not surprising to the Treasury market. The weakness in Treasurys is impacting global yields and putting pressure on stocks. The USD gains yesterday were a result of safe-haven trades and position adjustments following Fitch's US sovereign credit rating cut. While the downgrade news doesn't immediately negatively impact the USD, it doesn't provide a positive outlook either and may contribute to longer-term challenges for the USD. Today, there is a comprehensive set of data releases from the US. Weekly claims and Q2 Unit Labour Costs are scheduled for 8.30ET, with the latter expected to show a marked deceleration, which could temporarily alleviate the upward pressure on US rates. Final Services and Composite PMIs will be released at 9.45ET, while Factory Orders and ISM Services data are due at 10ET. Richmond Fed President Barkin will also be speaking on the economic outlook at 8.30ET.

CAD - Canadian Dollar

The USD is showing overall strength, and US bond yields are on the rise, while equities are weak, creating a challenging situation for the CAD. This morning, the CAD is experiencing additional pressure, trading in the upper 1.33s. Crude prices have stabilized after a decline yesterday, but this offers little solace to the CAD, which remains susceptible to external factors. The fair value estimate has increased recently, indicating less support for the CAD. However, despite this, CAD losses still surpass the modeled equilibrium estimate of 1.3128. Observe the USD/CAD trends.

EUR - Euro

EUR/USD is showing some weakness but managing to hold around yesterday's session low. The final German Services and Composite PMI data for July were slightly adjusted upward compared to the preliminary figures. However, this wasn't enough to prevent a modest downgrade in the overall Eurozone data. The Services index was revised down by 0.2 to 50.9, and the Composite reading was adjusted 0.3 lower to 48.6 compared to the initial report. ECB Governor Panetta made comments indicating that underlying inflation was slowing down, and there were increasing downside risks to the economy. He also mentioned that core inflation was likely to remain relatively stable throughout the summer. Policymakers are set to make decisions on interest rates in September.

GBP - British Pound 

Before the Bank of England's policy decision at 7.00ET, GBP experienced a decline, following the overall trend in G10 FX during the overnight session. The UK's final Services PMI for July remained unchanged at 51.5 from the preliminary reading, while the Composite reading was revised slightly higher to 50.8. Swaps pricing indicates a slight decrease, now factoring in 30bps of tightening from the Bank of England today. If the Bank implements only a 25bps hike, it could be seen as somewhat disappointing, and to prevent further losses in GBP, guidance indicating the necessity for further rate increases will likely be required, specifically in the low 1.26s range.