Daily Currency Update

USD - US Dollar

The dollar enjoyed a rally thanks to strong JOLTS job opening data but sold off later due to comments from Federal Reserve speakers. They suggested a potential rate hike 'skip' in June but left the door open for a hike in July. This indicates a new communication tool for the Fed's tightening cycle. Today, we have ISM Manufacturing, Initial Claims, ADP employment report, and later, weekly US crude inventory data. Brent remains weak, and a large inventory build could keep it low, affecting oil-exporting currencies before the OPEC+ meeting this weekend. The greenback is expected to remain rangebound until tomorrow's NFP report. 

CAD - Canadian Dollar

The Canadian dollar is extending slight gains, continuing its upward trend in calm trading conditions. Yesterday's release of Canada's GDP data indicated a strong and robust economy. The first quarter GDP surpassed expectations and exceeded the Bank of Canada's projections. Furthermore, the monthly data revealed that March's economic activity remained resilient, surpassing forecasts and showing promising signs for a smooth transition into April. These positive indicators increase the likelihood that the Bank of Canada will hike by an additional 25bp at its next meeting in June. With solid economic data and the recent narrowing of spreads between the US and Canada, look for the CAD to received a short-term boost against the greenback. Observe the USD/CAD trends.

EUR - Euro

Declines in German, French, and Spanish May inflation data have sparked speculation about a potentially weak flash CPI figure for the eurozone today. Market consensus predicts a drop in the headline inflation rate from 7.0% to 6.3% year-on-year, while the core inflation is expected to decline from 5.6% to 5.5%. If eurozone inflation falls faster than that of the US, it would surprise the market, as it had anticipated the US inflation rate to decrease more quickly due to the greater weight of assets. The recent softness in European inflation has also led to a drop in eurozone swap rates compared to those in the US, widening the two-year EUR:USD swap differential, which has negatively impacted EUR/USD. Unless there is a significant surprise in the eurozone CPI data, it is likely that EUR/USD will trade within a range of approximately 1.0650-1.0720 today. 

GBP - British Pound

The British pound (GBP) continues to show strong performance. Although there has been a slight reduction in the aggressive tightening expectations for this year (previously estimated at 110 basis points), the adjustment has been minimal. Speculation arose regarding a speech by Catherine Mann, a Bank of England hawk, yesterday, suggesting she might push back against these tightening expectations, similar to what the BoE did last year when the market priced in a Bank Rate of 5.50%. However, in line with her tendencies, Mann cautioned that UK consumers were utilizing their excess pandemic-related savings for spending purposes, while corporates were capitalizing on improved pricing power to increase their profit margins. The market is currently pricing in approximately 100 basis points of tightening for this year.