Daily Currency Update

USD - US Dollar

Today is a subdued start to Fed day, with holidays in major Asian markets reducing overnight trading activity. The mood is cautious, with stocks down in Asia and Europe after U.S. market losses. U.S. equity futures and bonds are also down, while crude oil has fallen $1.50. The USD is slightly stronger, although gains are limited, and there is some selling pressure as the DXY index tests its mid-April high. U.S. data releases today include ADP employment, JOLTS job openings, and Manufacturing ISM. However, the focus is on the Federal Reserve's decision at 2:00 PM ET and Chair Powell's press conference at 2:30 PM ET. Expected Fed messaging includes maintaining interest rates, with a patient approach until inflation steadily approaches 2%. While the Fed is not likely to consider rate cuts or hikes, Powell might acknowledge that recent developments have outdated the latest projections. Post-meeting, the USD may rise initially but could face selling pressure if no new factors emerge to push yields and the USD higher.

CAD - Canadian Dollar

The CAD weakened after a disappointing February GDP report but stabilized in the upper 1.37s overnight. Market reactions slightly increased the likelihood of easing at the June Bank of Canada (BoC) meeting, though the probability remains about even, and rate cuts are not imminent. BoC Governor Macklem and Senior Deputy Governor Rogers are testifying at a Senate panel today and will appear before a House of Commons panel tomorrow. Macklem's statement is due at 4:15 PM ET, expected to echo recent bank communications, acknowledging progress on inflation but emphasizing the need for its sustainability before considering easing. The CAD has further deviated from its fair value (1.3711) today, and its short-term trajectory will hinge on the market's response to the Fed's upcoming decisions. Observe the USD/CAD exchange rate. 

EUR - Euro

The EUR/USD remains stable as markets await the FOMC outcome. The currency pair briefly dipped to the mid-1.06 range before returning to its opening level in Asia, with no significant data releases or ECB commentary impacting movement. The 2-year Eurozone/U.S. yield spread is steady at around -200 basis points, near its recent and last year's lows. The short-term outlook for the EUR depends largely on whether this yield differential holds or if U.S. short rates increase following the FOMC, potentially widening the gap further.

GBP - British Pound

Sterling remains unchanged in today's session, mirroring the movement of other major currencies. UK housing data showed a somewhat larger-than-anticipated decline in house prices (-0.4%) in April, based on Nationwide's index, while the final UK Manufacturing PMI was adjusted upwards to 49.1 from an initial estimate of 48.7.