FOMC Minutes unlikely to change downward USD trend
USD: The greenback is now very close to its multi-year low reached at the beginning of the year as the prospects for persistently deep negative real rate weigh on USD. With the Fed in no rush to respond to rising prices and the expected rebound in European and global growth this summer benefiting other currencies, the outlook for USD does not look bright. Expect the trend of the dollar softness to continue in the coming weeks and months, and today’s FOMC minutes should not change that.
CAD: The loonie continues to appreciate against the greenback and was trading at a six-year briefly yesterday. While markets may be reluctant to chase the CAD higher there remains no change in the CAD’s fundamental condition (strong commodity prices, CAD-supportive spreads). Several fair value model estimates equilibrium for a spot at about 1.1932. Most expect the CAD to remain firm and continue to track the broader market tone—commodity prices and the USD—for now. Canada releases CPI data today.
EUR: EUR/USD continues to benefit from soft USD dynamics and the improving eurozone economic outlook, a function of the gradual reopening plans. Rising EUR/USD is a clear tailwind for FX, with both G10 and EM European currencies outperforming within their respective segments. Expect the euro to continue to gain against the greenback over the medium term.
GBP: The UK data points this week should provide continuous support to GBP. Solid UK employment numbers yesterday and the rise in April CPI to 1.5%YoY today should keep GBP bid and hand in hand with rising EUR/USD. Analysts are calling for a 3 month GBP/USD forecast of 1.36
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