Markets have a busy week ahead. The FOMC decision Wednesday looms large over trading, given the perkier inflation readings from the US last week which lifted US yields and the USD. The USD is trading close to Friday’s levels this morning and ranges are tight: if anything, the DXY has conceded a bit of ground on the day. Firm crude oil prices—near a four-month high—are helping the CAD outperform. Economists do not anticipate a tightening move this week but swaps suggest a 10bps increase in the target rate to 0.0% is a 50% risk. US 10Y bond yields around 4.30% are supportive for the USD but yields will need to press higher still if the USD is to advance further. It’s not clear that recent data trends can achieve that and the recent uptick in rates risks unwinding quickly if the Fed sounds more dovish than markets expect on Wednesday. Seasonal trends may be turning against the USD as well. April is typically a soft month for the DXY after a strong Q1. The DXY has returned an average of –0.47% in April over the last 25 years, the second worst month of the year after December.
In early European trading, the spot price slightly decreased as crude oil prices rose modestly, while the USD's losses were minimal. The spot has since recovered, showing little change as the North American market opens. This week, global central bank policy decisions are in focus, but the Canadian dollar faces domestic risks. Canada will release CPI data tomorrow, expected to show a rise in headline prices and persistent core inflation. The minutes from the Bank of Canada's last rate decision, due on Wednesday, may highlight concerns about slow disinflation. The Canadian dollar could gain some support from sustained inflation pressures but might weaken if upcoming Retail Sales data on Friday disappoints, as expected. Observe USD/CAD trends.
The EUR is stable as markets await external developments. Eurozone CPI for February remained at 2.6% Y/Y, as expected. ECB Governor de Cos hinted at a possible interest rate cut in June, aligning with a growing consensus among senior policymakers for a mid-year adjustment.
The UK's Rightmove index indicates a 1.5% rise in house asking prices this month, the fastest in 10 months, signaling a slight recovery in the housing market due to expectations that BoE interest rates have peaked and will decline. Despite this, Sterling remains low, barely moving from the low 1.27 range.
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