FX markets have entered a period of temporary calm and ranges have been quite subdued this week. Federal Reserve Chairman Jerome Powell, European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey all speak on a Sintra panel today at 15CET. Currently, money markets price US, eurozone and UK policy rates at 3.40%, 1.10% and 2.90%, respectively, by the end of this year. Of the three, we would think the pricing of US rates is still the most subject to upside risks. For today, look out for those remarks from central bankers and also the US May reading for the headline and core PCE deflator readings. High month-on-month readings are expected for headline and core and any upside surprise could see US rates and the dollar nudge higher.
The CAD, which has increased by almost 0.3 percent against the USD, is currently the best-performing major currency this week. Stronger crude and metals are adding to the CAD's bullish risk outlook, and markets may be beginning to take notice of Canada's robust resource industry as customers across the world hunt for other sources of energy and other raw commodities. There aren't any significant data points in Canada until tomorrow's print of April's GDP, and the fact that Friday is a holiday implies that the market may not pay much attention to the report in any case. The CAD is expected to continue moving higher in the coming days, maybe reaching the low/mid 1.27s. Observe the USD/CAD chart.
EUR/USD continues to consolidate near 1.05 and must be keeping one wary eye on developments at the G7 summit where world leaders are trying to cap the price they pay for Russian energy, while avoiding an abrupt shut-off in Russian exports. ECB President Lagarde's remarks today will be in focus, where there is a risk that she embraces the earlier and more hawkish tightening path promoted by some of her colleagues. EUR/USD to probably continue tracing out a 1.0450-1.0550 range in the medium term.
The GBP has weathered news of another potential Scottish referendum (19 October, 2023) quite well. That may be because the chances of Westminster granting it are unlikely - though it looks like markets may be buffeted by UK supreme court opinions on this matter over coming months and quarters. Look out for remarks from Governor Bailey today. This year the Bank of England's strategy has been to communicate less on forward guidance, which has seen UK rates track US rates more closely. With inflation staying near the highs, we doubt Governor Bailey will want to push back too much against tightening expectations today.
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