Daily Currency Update

USD - US Dollar

The USD's consolidation continues, extending beyond its early-week fall, showing mixed performance against major currencies. Asian regional currencies are performing better, likely due to the positive outcome of the Biden/Xi meeting and the prospect of better relations. Meanwhile, stocks are slightly weaker, but bonds are gaining strength. Oil prices are down, whereas industrial metals are showing resilience. The prevailing mild risk aversion is affecting currency performance. A busy day lies ahead for the USD, with important data releases including Import Prices, the Philly Fed survey, weekly claims data, Industrial Production, the NAHB Housing Market Index, and the KC Fed manufacturing Index. These reports could show weakness—weekly claims have been increasing and might be impacted by seasonal factors, and industrial production could suffer due to auto sector strikes. This could put the USD under mild pressure due to these weak indicators. Numerous Federal Reserve speakers are scheduled today, and key officials might continue to caution against declaring an early triumph over inflation. However, market trends indicate a reduced likelihood of increased rates. This change in outlook is reflected in risk assets, with the S&P index rising over 10% since late October. This strength in stocks is likely to create additional challenges for the USD.

CAD - Canadian Dollar

The CAD is experiencing a slight decline today, following a similar trend to other commodity-linked currencies. This comes after it performed fairly well yesterday, managing to secure a modest gain against the U.S. Dollar while most other major G7 currencies saw declines. Current weaknesses in stocks and oil prices are posing minor challenges to the CAD in the short term. However, recent improvements in short-term yield differentials favoring the CAD hint at potential for further strengthening. The estimated fair value has been adjusted slightly downwards to 1.3698. Observe USD/CAD trends.

EUR - Euro

EUR/USD is marginally positive in today's trading. The market appears to be in a phase of consolidation and trading within a range, lacking any new developments to influence direction. Significant data reports from the Eurozone are not expected until next week's PMIs. Generally, data surprises are increasingly favoring the EUR while showing a slight decline for the USD. This trend could persist in the short term, as the US economy exhibits signs of slowing down. Meanwhile, anticipated challenges for Europe, such as energy issues, are not materializing as expected, partly due to milder weather easing energy concerns.

GBP - British Pound

Sterling is exhibiting a mild weakness in today's session. While there haven't been any new data reports from the UK, the impact of yesterday's weaker-than-anticipated CPI data is still influencing the GBP's performance. This occurs even as Bank of England policymakers maintain that interest rates will need to stay high.