Daily Currency Update

USD - US Dollar

Once again, the US dollar is recovering and making slight gains against major currencies in the G10 group. As concerns about the debt ceiling diminish, US Treasury yields are decreasing, while hawkish statements from Federal Reserve officials are reinforcing the possibility of a June interest rate hike, although expectations are cautious. Richmond Fed President Barkin acknowledged the restrictive nature of current policies but expressed concerns about high inflation and the need for clearer signs of diminishing demand. Mester, on the other hand, stated that there was no justification to pause the process of tightening monetary policy. Both Barkin and Mester are voting members of the Federal Open Market Committee (FOMC) this year, and the pricing for the June FOMC meeting has remained relatively stable, with around a 16 basis points increase factored in. Now that the debt ceiling issue seems to be mostly resolved (after clearing the House Rules Committee hurdle yesterday, a vote in the House is expected today), market focus will shift to the release of the May Non-Farm Payrolls (NFP) report on Friday. While the consensus forecast stands at 195,000, market expectations lean slightly towards higher print.

CAD - Canadian Dollar

The Canadian dollar (CAD) is facing downward pressure, reflecting the broader gains made by the US dollar (USD), as well as a slight decline in stock markets and further decrease in energy prices (with WTI trading at around $68). The USD/CAD pair's gains have pushed the exchange rate back to the mid to upper 1.36 range, where the USD's recent advances have encountered resistance. Today, Canada is releasing GDP data for March and the first quarter. While growth data for March is expected to show a slowdown compared to February, overall, the first quarter has been shaping up to be relatively robust. The flash estimate for April may provide an early indication of potentially slower growth ahead. However, this does not undermine the belief that the Bank of Canada (BoC) should implement some additional precautionary tightening measures, considering persistent inflationary pressures and signs of renewed activity in the housing market. Weaker growth data could further intensify near-term pressure on the CAD.

EUR - Euro

The EUR has declined by slightly over 0.5% in trading, falling below 1.07 and reaching its lowest level since late March. France's May Consumer Price Index (CPI) came in lower than anticipated, and German state data indicate a below-consensus outcome for the national figure this month (expected to be +0.2% month-on-month). As a result, market expectations for European Central Bank (ECB) interest rate hikes have been slightly reduced, leading to a weaker EUR and implying limited potential for a rebound in the currency at this stage.

GBP - British Pound

The British pound (Sterling) is experiencing a decline, similar to other European currencies, due to the overall strength of the US dollar. Survey data for May revealed a decrease in business confidence in the UK, although the Lloyds Business Barometer, which provides this information, typically does not have a significant impact on the market. The depreciation of GBP is primarily driven by the overall strength of the USD.