Daily Currency Update

USD - US Dollar

Following yesterday’s US CPI data, the USD remains strong but has stabilized instead of further advancing. Market expectations for a Federal Reserve rate cut have been pushed back to late this year, influenced by the CPI figures. Currently, a 0.25% rate cut is anticipated by November. The "high for longer" Fed rate outlook suggests a persistently strong USD. Geo-political tensions also support the USD in the short term. Despite some caution, the possibility of earlier rate cuts outside the US could further bolster the USD. Today's US PPI data, expected to show a 0.2% month-on-month increase in core PPI, might slightly reduce USD strength. Additionally, today’s comments from Fed speakers including Williams, Barkin, Collins, and Bostic, are noteworthy.

CAD - Canadian Dollar

Following the US CPI data, US/Canada interest rate differentials widened, partially offset by a cautious Bank of Canada policy decision. This widening, coupled with weaker stocks, has negatively impacted the CAD. The US/Canada 2-year spread has exceeded recent highs, reaching over 60 basis points, a peak not seen in a year. Despite these challenges, the CAD's value remains stable (at 1.3690 today), influenced by recent shifts favoring the USD. Observe USD/CAD trends.

EUR - Euro

The EUR remains low as the ECB is set to announce its policy decision, with expectations leaning towards maintaining the status quo but potentially setting the stage for a rate cut in June, aligning with signals from ECB officials. While a June cut is anticipated, ECB President Lagarde might adopt a cautious tone, emphasizing data dependency and avoiding commitment to further cuts, in part to temper market expectations and manage the EUR's value amidst prevailing uncertainties. This cautious stance could slightly buoy the EUR.

GBP - British Pound

BoE MPC member Greene warned against premature rate cuts in a Financial Times article, with a follow-up speech scheduled for later today. Market pricing reflects this caution, not fully expecting a UK rate cut until September and projecting only a 0.5% reduction for the year. However, a UK-based analyst anticipates that lower inflation could lead to earlier and more significant BoE rate cuts.