Daily Currency Update

USD - US Dollar

Markets are likely to remain quiet today as they await the FOMC decision tomorrow and the ECB decision on Thursday. The US dollar index has been gaining ground for six consecutive sessions and is close to recovering 50% of its losses from early July. The main driver of the US dollar's strength today is the underperformance of the EUR, which was weakened by disappointing German data and a notable increase in speculative EUR buying. This leaves the EUR vulnerable to a correction as traders adjust their positions ahead of the FOMC decision. While the rebound in the US dollar index has exceeded expectations, the overall outlook for the USD remains challenging, with most analysts predicting a weakening of the USD in the second half of the year (H2). The Federal Reserve is expected to raise interest rates tomorrow, which is likely to be the final move in the current cycle. Policymakers may leave the possibility of further tightening in the future, but historically, markets tend to focus on the peak of the rate cycle, and the USD has typically weakened after reaching its highest rates. This morning's data in the US includes reports on housing and consumer confidence, as well as the Richmond Fed Manufacturing Index.

CAD - Canadian Dollar

On Monday, the CAD experienced a slight upward movement in an overall quiet trading session. However, today, it has retraced some of those gains (less than 0.1% so far) after testing the mid-1.31 area again during the overnight session. The CAD is currently trading just below its estimated fair value, which is slightly below 1.30. The CAD is receiving significant support from stronger commodity prices, particularly with notable gains in crude oil and wheat prices over the past few sessions. This positive sentiment is fueled by a generally optimistic risk appetite in the markets, as investors anticipate a slowdown in central bank interest rate hikes. This positive outlook for central bank policies should provide some support for the CAD, or at the very least, help mitigate any potential losses for the currency, even if the market's attention is focused on other matters at the moment. Observe the USD/CAD trends.

EUR - Euro

Germany's Ifo Business Confidence reading for this month declined more than anticipated, coming in at 87.3 (compared to a forecast of 88) after a revised figure of 88.6 in June. The data revealed that the majority of sectors in the economy are facing challenges due to worsening conditions, indicating that the economy is struggling to recover from the early-year slump. Weak demand from China and increasing interest rates are among the factors contributing to these difficulties. The soft economic data put downward pressure on the EUR. However, despite these concerns, the market's swaps still indicate a 25bps ECB interest rate hike expected for this week, with a fairly strong level of confidence (roughly 80% probability) in the possibility of another rate hike before the end of the year.

GBP - British Pound

The GBP received a slight boost from survey data that turned out to be firmer than anticipated, although it still indicates softness. This contributed to the currency's ongoing recovery from yesterday's test around the 1.28 level. The CBI's Manufacturing Orders survey for July showed improvement, with the index rising to -9, up from -18 in June. Export orders also showed signs of improvement, along with increased activity and optimistic expectations, indicating a potential rebound in industrial activity.