Daily Currency Update

USD - US Dollar

The US dollar is strengthening today and might end the week with its first gain in three weeks. The USD's rebound during the overnight session seems to have been triggered by weak European PMI data. Among major currencies, the euro (EUR) has declined by nearly 0.9% and is performing poorly, similar to the Australian dollar (AUD). The overall market conditions are supportive of the USD, as stocks are generally trading lower and bonds are finding better support. Weak signals of economic growth are negatively impacting commodities. The USD's rebound is countering the previous weakness observed due to this week's policy actions and comments from central bankers. During Fed Chairman Powell's second appearance before the Hill on Thursday, there was not much additional insight into the Fed's thinking. However, Powell seems to approach the policy outlook with caution, unlike Bowman, who plainly stated the need for more interest rate hikes in her speech yesterday. Today's soft data from Europe has slightly tempered expectations of rate hikes, but in the long run, the risks for the USD still seem to be tilted downward. This should be positive for riskier assets and negative for the USD, as investors are likely to shift their capital away from the USD and towards higher-yielding assets with greater risk in the coming months.

CAD - Canadian Dollar

Yesterday, the Canadian dollar (CAD) remained fairly stable, with the USD/CAD hovering around the mid-1.31 range. However, the broader rebound of the US dollar (USD) this morning has proven to be irresistible. Given the unfavorable risk environment and weaker commodity prices, the losses in CAD seem relatively insignificant. Nonetheless, this overall backdrop indicates a somewhat weaker CAD performance today. The extent to which the spot rate can recover remains uncertain. Although the CAD is not evidently misaligned (with fair value slightly increasing to 1.3125 today), position adjustments may keep the USD relatively supported on minor downward movements, at least for the time being.

EUR - Euro

The euro (EUR) was severely impacted by Eurozone PMI data for June, which turned out to be weaker than expected. French Services data experienced a significant decline, dropping to 48 from May's 52.5, pulling down the Composite reading to 47.3 from 51.2. German Manufacturing also slumped, falling to 41 compared to the previous 43.2, causing the Composite reading to dip to 50.8 from 53.9. The preliminary Eurozone Composite reading plummeted to 50.3, indicating that economic growth is barely positive as interest rates begin to affect the economy. As a result, market expectations for the European Central Bank (ECB) have been moderated. However, policymakers are still highly likely to implement interest rate hikes, at least in July. Weaker growth is necessary to alleviate inflationary pressures at the core.

GBP - British Pound

The data from the UK showed a mixed picture. The PMI numbers were slightly weaker but generally aligned with expectations. On the other hand, Retail Sales surpassed forecasts, with a monthly increase of 0.3% in headline terms and 0.1% for the core measure. As a result, the British pound (GBP) experienced a slight decline but has shown some improvement against other currencies. Market participants are still factoring in strong expectations (around 45-46 basis points) for another forceful tightening by the Bank of England (BoE) in August.