Daily Currency Update

USD - US Dollar

Following the FOMC decision yesterday, the USD is exhibiting mixed trading behavior against its major currency peers. Peripheral currencies such as KRW and NOK are causing the USD to trade softer, whereas there are some minor losses against core majors like JPY, CAD, and GBP, and minor gains against EUR and CHF. The DXY has slightly increased from its overnight lows as the market digests yesterday's developments, which include weaker stocks due to ongoing stress in the US regional bank sector and anticipation for today's ECB policy decision. The Fed has most likely ceased its rate hikes after the 10th successive hike and has adopted a data-dependent approach. Although the policy statement stated that various factors would determine whether additional policy firming is necessary, market pricing reflects that no further hikes will be implemented, and significant rate cuts are expected by year-end. The USD is expected to remain soft but is likely close to fair value in broad terms based on current interest rate differentials. A significant rebound is unlikely, and range trading with a soft bias appears probable for the DXY in the near-term.

CAD - Canadian Dollar

The CAD is showing little change during the session due to several contrasting drivers. Despite softer stocks, a minor gain for crude oil, and steady spreads, they are providing mixed signals for the CAD. Today, BoC Governor Macklem is participating in a "fireside" chat to discuss the challenges and risks of achieving the inflation target. This chat presents another opportunity for the governor to sound hawkish and remind markets that higher rates could still be considered. Furthermore, the market pricing for rate cuts by year-end (which currently reflects more than 25bps in cuts) is not appropriate. The tone of the comments might differentiate from the newly neutral-looking Fed and give short-term spreads a push in favor of the CAD. The comments will be released at 12.50ET, followed by an audience Q&A and a media press conference (14.15ET). Observe the USD/CAD trends.

EUR - Euro

Although the EUR remains firm, it has retreated slightly from the 1.11 area, where it peaked yesterday following an overnight test. The ECB is anticipated to increase its key policy rates by 25bps today, raising the deposit rate to 3.25%. At this point, a 1/4 point hike has been fully priced in, and the market is still inclined to bet on the (small) possibility of the ECB being a bit more aggressive. The data from the previous week has likely reduced the risk of a 50bps hike, but there is a definite group of policymakers who believe in the hawkish side of the outlook and think that policy will need to increase further in the coming months. A clear message from President Lagarde that more hikes are imminent should support the EUR, but a highly hawkish message may be necessary to push EUR/USD above 1.11 and towards the 1.12 area currently.

GBP - British Pound

The money supply data for March in the UK showed a mostly firm trend with stronger demand for consumer credit and stronger mortgage approval data. However, the data also revealed another net outflow from Gilts among foreign investors, which extended the run of net outflows in recent months. Today's UK local elections are unlikely to have a significant impact on GBP, but it is expected that the ruling Conservatives will experience substantial losses, putting investors on alert for a potential change in political direction at the next general election.