Daily Currency Update

USD - US Dollar

The USD is trading mixed against major currencies this week with a weak undertone. Core majors' gains have slowed, commodity FX is softer, and the JPY is down around 0.5%. The EUR didn't receive significant boost from hawkish ECB comments, indicating the stretched nature of the USD sell-off. The JPY has returned to the mid-141 zone after the BoJ's unchanged policy decision. Today's US data calendar is light, only featuring preliminary U. Michigan sentiment data. However, with the blackout period ending, we can expect comments from Fed policy makers such as Governor Waller (voter, hawk), St Louis Fed President Bullard (non-voter, hawk), and Richmond Fed President Barkin (non-voter, centrist). Chairman Powell will also address House and Senate panels next week after Monday's US Federal holiday.

CAD - Canadian Dollar

During the overnight session, the CAD has maintained a narrow range as the USD attempts to stabilize. While global stocks have seen solid gains, there has been some recent weakness in crude oil prices, creating a mixed environment for the CAD. Commodity FX, including the CAD, has generally traded slightly weaker, which could be attributed to downgrades in China's growth prospects following a series of disappointing data for May. Despite this, there is still some potential for upward movement in the CAD based on fundamental factors (with fair value currently closer to 1.31). The positive overall conditions should help limit any countertrend movements, such as a rise in the USD, at least for the time being. Observe the USD/CAD trends.

EUR - Euro

Following yesterday’s policy decision, ECB officials wasted no time in emphasizing the possibility of the ECB policy cycle extending beyond July. They anticipate a challenging discussion in July regarding whether the ECB should continue tightening until September. Echoing these views, Bundesbank President and resident ECB hawk Nagel reiterated that there is still "more ground to cover" and that the ECB may need to continue raising rates after the summer. Compared to the US, investors maintain a stronger belief in the hawkish policy direction in Europe, which should support positive sentiment towards the EUR in the near term.

GBP - British Pound

Sterling was little changed overnight and continues to maintain gains made earlier this week. In May, the Bank of England's survey on consumer inflation expectations indicated continued improvement, driven by declining energy prices. Nevertheless, long-term expectations for inflation remain high, posing challenges for policymakers in their efforts to control inflationary pressures. The upcoming BoE meeting is anticipated to result in a 25-basis points hike accompanied by hawkish guidance. As a result, Sterling is expected to remain well-supported, with moderate downward movements being met with buying interest, at least in the immediate future.