Daily Currency Update

USD - US Dollar 

Yesterday, the US yields and the value of the USD were negatively affected by the US CPI data, which turned out to be weaker than anticipated. Furthermore, this morning's soft PPI numbers could contribute to the challenges faced by the market as it contemplates whether the Federal Reserve's tightening measures will continue beyond the current month. If we assume that the Fed's intention to prolong the rate hikes means that there won't be another increase in September after this month's hike, then the next opportunity for a rate raise by the Fed would be on November 1st, which seems quite distant, especially considering the expectation of a cooling US economy at that time. The economic data released this week have reduced the likelihood of the Federal Reserve delivering two more rate hikes this year, and as a result, the USD is likely to be more vulnerable to negative economic data reports in the future. In today's trading session, the USD is further amplifying its losses from yesterday in a significant manner. The DXY index has declined by almost 2% this week and is currently trading below the lows observed in January and April, specifically at 100.8. Look for further USD downside in the upcoming weeks.

CAD - Canadian Dollar

Yesterday, the Bank of Canada delivered the anticipated 25 basis points (bps) increase in its Overnight Rate, bringing it to 5.00%, which is the highest it has been in 22 years. The Bank's policy statement emphasized that the growth was stronger than expected and inflation remained resilient. Additionally, the statement reiterated the Bank's concern that progress towards achieving the inflation target may be slowing down. Governor Macklem stated that the Bank would tighten monetary policy further if necessary. Currently, the market is estimating a slightly higher than 50% probability of another rate hike before the end of the year.  Observe the USD/CAD trends.

EUR - Euro

Despite the news flow this morning not providing much support for the euro (EUR), the EUR/USD pair is swiftly advancing and has surpassed its previous cycle highs. Eurozone Industrial Production data for April showed a 0.2% increase, which was below the forecast, and a year-on-year decrease of 2.2%, which was significantly worse than expected. It is important to note that the Eurozone's industrial sector's weakness is not a recent development, and these figures are relatively outdated. The likelihood of two more rate hikes remains strong, which is expected to lead to further compression in spreads in the upcoming weeks.

GBP - British Pound

Despite the absence of particularly positive domestic news, the GBP is strengthening further this morning. The UK GDP experienced a decline of -0.1% in May and remained flat in the 3-month reading, although these figures were slightly better than anticipated. The RICS House Price data indicated a significant deterioration in the housing market. Despite the negative news, the GBP continues to strengthen and maintain its weekly highs against the USD.