USD: As widely expected after the release of prepared remarks ahead of his testimony, Fed Chair Powell did not strike a hawkish tone yesterday and rather reiterated the temporary nature of current price pressures. After the hawkish surprise from the Fed last week, this should further help to stabilize the market and translate into a supportive environment over the summer for currencies where local central banks have opted for meaningful tightening cycles including Canada.
CAD: The CAD has strengthened somewhat after yesterday’s testimony by Powell as well as support from crude oil and commodity prices. High commodity prices and the divergence in monetary policy suggest that the fair value estimate for spot is likely heading lower—this morning’s equilibrium point for spot is 1.1835, the lowest in this cycle. The CAD still looks to offer great fundamental value.
EUR: EUR/USD benefited them the cautious Chair Powell remarks yesterday and, although the upside over the summer is unlikely to be pronounced as the Fed is ahead of the ECB in terms of the road towards tightening, equally EUR/USD downside should be limited as the Fed’s tightening is not imminent and it should be a calm two months ahead of Jackson Hole in August.
GBP: In the UK, the focus is on June PMIs. We may see a slight increase in the services index again, though manufacturing PMIs may reverse lower modestly after their meaningful rise last month. GBP has recently started recovering some ground vs EUR but is still a lagger against the greenback. That said, most expect a supportive GBP environment over the coming months.
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