Daily Currency Update

USD - US Dollar

The USD is moderately stronger today, but market sentiment remains cautious due to the US debt ceiling issue, which is currently in the spotlight. Republicans are not in a rush to reach an agreement, and some are skeptical about Treasury Secretary Yellen's proposed timeline for the June deadline. This political maneuvering suggests increased uncertainty in the coming weeks as negotiations approach. Concerns about the Chinese economy's momentum have also impacted local stocks and industrial metals like copper and iron ore. Global stocks have seen significant declines, while bonds have received some support. The release of the FOMC minutes from the May policy decision will provide insights into the rate hike to 5.25% and clarify whether the Fed sees themselves as "not far off" or already "sufficiently restrictive," as Chairman Powell indicated in his post-meeting comments. 

CAD - Canadian Dollar

The CAD is slightly weaker due to weak risk appetite and significant losses among commodity peers. However, it remains within its established range. There is a possibility that the recent sideways trading range could eventually transition into a more dynamic phase of market movement. Our forecast suggests further range trading around 1.35 for spot prices until the end of Q2, but we anticipate a longer-term improvement in the CAD as risk appetite improves in the second half of the year, especially if there is a potential decline in US interest rates. Furthermore, the overall negative sentiment towards the CAD seems to be moderating as US/Canada yield spreads narrow and concerns about a correction in the resilient domestic housing sector appear exaggerated. Observe the USD/CAD trends.

EUR - Euro

Germany's May IFO survey aligns with the weakness observed in the industrial sector as indicated by this week's PMI releases. The overall business confidence reading declined to 91.7 from a revised 93.4, falling short of the expected 93.0 outcome. This marks the first significant setback for the index since October. Despite this, ECB policymakers are unlikely to back down from their plans to raise rates. The recent hawkish comments, strongly suggesting further tightening measures in the future, could potentially slow down the EUR's recent decline against the USD.

GBP - British Pound

UK April inflation data exceeded expectations by a significant margin. Headline prices increased by 1.2%, surpassing the forecast of 0.7%, while core inflation accelerated to 6.8% from 6.2% in March. The GBP initially surged against the USD as markets priced in the likelihood of more tightening by the Bank of England (BoE). However, it subsequently experienced a sharp decline, reaching new session lows around 1.2375/80, as investors became concerned about the potential economic impact of further rate increases. BoE tightening expectations have been adjusted, with swaps now reflecting approximately 75 basis points of tightening in the coming months.