Daily Currency Update

USD - US Dollar

Markets have responded positively to recent inflation data, nearly erasing the dollar's mid-April losses. A core CPI increase of 0.3% month-on-month marked the first slowdown in six months, with stagnant retail sales in April suggesting a slowing US economy. Despite inflation remaining high, market optimism persists. Two FOMC members, Neel Kashkari and Austan Goolsbee, emphasized the need for continued tight policy, but markets still expect two rate cuts this year. Our outlook is slightly more dovish, predicting three cuts in 2024 starting in September. Current pricing shows optimism for a more dovish stance based on upcoming core PCE and job figures. We anticipate a period of low volatility and directionless trading until the next key data release on May 31. Today's US calendar includes jobless claims, April housing starts, and the Philadelphia Fed Business Outlook index. Several Fed speakers are also scheduled. Chinese retail sales and industrial production data overnight could influence market sentiment into the weekend.

CAD - Canadian Dollar

The CAD gave up last night's gains and retreated slightly in early European trading, now positioned around 1.3625. This decline follows disappointing March Manufacturing Sales data, which showed a significant contraction. However, rising oil prices may support the CAD and temper further losses. The direction of the CAD will likely be driven by external factors, including US data, commodity prices and trade dynamics. Observe USD/CAD trends.

EUR - Euro

The euro fell slightly from the crucial resistance of 1.0900 in Thursday’s European session but remains firm, with traders pricing in three ECB rate cuts this year. ECB policymakers are confident of starting monetary policy normalization in June. ECB Governing Council Member François Villeroy de Galhau stated that rate cuts would likely begin in early June, aiming to boost the economy by 2025.

GBP - British Pound

In Thursday's London session, Sterling turned sideways after hitting a fresh monthly high near 1.2700. The near-term outlook for GBP remains upbeat as uncertainty over BoE rate cuts persists due to stubborn wage growth. UK Average Earnings grew steadily in the three months ending March, raising concerns about inflation progress. With little on the UK economic calendar, investors will focus on BoE policymakers scheduled to speak on Thursday and Friday.