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USD Likely to Drive Lower Unless Non-Farm Payrolls Come in Strong

USD Mixed Ahead of Tomorrow’s NFP Report

USD Gains Broadly; Attention Shifts to NFP Report 

USD Softens Across the Majors

USD Edges Higher After Release of FOMC Minutes

USD Higher; FOMC in Focus

Price Pressures Suggest BoC May Hike Rates Again

US Debt Ceiling Driving FX

April Inflation Report Brings Hope for USD

US CPI in Focus

USD/CAD Opens Just Shy of 1.34 Handle

It’s Jobs Friday

USD Mixed after FOMC, ECB Ahead

Fed Day

Market Refocuses on US Price Data

USD Slips on Renewed Regional Bank Concerns

USD Drifts Lower

US Regional Bank Crisis Continue to Dominate Headlines

Canadian Retail Sales Released Today

Fed Likely to Raise Interest Rates by 0.25% in May

Canada Reports March CPI Today

USD Headed Lower as Week Closes

A Sharp Fall in US Headline CPI Yesterday has Helped Soften the Dollar

BoC Announcement – No Reason to Expect a Move

FX Markets Quite Ahead of Long Weekend

A Fall in US Job Openings Puts Recessionary Fears back in Focus

CAD Trading Higher for Seventh Consecutive Day

USD Safe Haven Status Dented

Daily Commentaries

<h3>USD - US Dollar</h3><p>FX liquidity was reduced yesterday due to a national holiday in the UK, and while major pairs did not move dramatically, we saw quite significant gains in some G10 commodity currencies including the CAD. This morning, some weaker-than-expected import data (-7.9% year-on-year) out of China seem to be softening the tone for the commodity space and maintaining a not-so-constructive picture on the demand side. This will be a crucial week for markets to fine-tune their Fed rate expectations after Chair Jerome Powell seemed to trade the explicit openness to a pause in tightening with pushback against rate cut speculation last week. There are currently 68bp of easing priced into the USD by year-end, with three drivers set to influence further swings: US banking developments, data and Fedspeak. The short term outlook for the USD remains neutral and rangebound.</p><h3>CAD - Canadian Dollar</h3><p>The US dollar recovered from CAD 1.3315 yesterday to almost CAD 1.3390. It is consolidating in a narrow range below there today (~CAD1.3365-CAD1.3385). Recall that last week, it peaked near CAD 1.3640. Overall Canada’s fundamental position remains solid although the current account dipped back into deficit and the adjustment in housing to higher interest rates creates some strains. Inflation is a bit lower than in the US and the BoC has paused the tightening process. Most analysts continue to remain neutral on the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> in the short term.</p><h3>EUR - Euro</h3><p>The euro is the most overbought currency in G10 according to CFTC data and speculators continue to add net-long positions in <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a>. This mostly has implications for the near term, so, while most remain bullish on EUR/USD in the longer run on the back of US-eurozone divergence and pronounced undervaluation, we flag positioning as one reason to be cautious on the short-term outlook. This week’s eurozone calendar is not very exciting and is highlighted by only by several ECB speakers. We expect 1.10 to keep being the anchor for EUR/USD this week.</p><h3>GBP - British Pound</h3><p>There are no key data releases before the Bank of England meeting on Thursday. We expect a 25bp rate hike, with a 7-2 vote split, an upward revision in growth projections and a reiteration that further tightening is possible if “persistent” inflation signs emerge. We don’t expect to see huge volatility on the pound around the release, and see <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> consolidating at levels above 1.25 in the aftermath of the BoE meeting.</p>

<h3>USD - US Dollar</h3><p>The US dollar is experiencing a general decline in trading and is likely to close the week on a weak note. This could mark the end of a period of consolidation for the currency and signal a broader downward trend according to technicals. Market focus is on US interest rate policies and short-term yields, which have seen a slight increase today. While the USD is expected to remain weak in the short term and attract selling interest, it is unclear if the decline will continue significantly. This week’s ADP report showed a strong gain in private sector jobs, raising expectations for the NFP report today. The consensus call is for 185k jobs, although some late entries in the Bloomberg survey are predicting 200k or more. The overall trend in the US labor market appears to be slowing, but it may take a significantly lower result (100k or less) to cause a major impact on the USD's value today.</p><h3>CAD - Canadian Dollar</h3><p>Ahead of this morning's job data, the Canadian dollar is making slight gains against a weaker US dollar. The employment data for April is expected to show a gain of 20k, which is significantly lower than the 12-month average of 35k. Although the labor market remains tight, there are concerns that wage growth may be slowing down. Governor Macklem's recent comments on inflation highlight the challenges that lie ahead in achieving price stability, and although he expressed optimism, the possibility of higher rates cannot be ruled out. Market analysts are currently factoring in the risk of slightly more than one 25 basis point rate cut by the end of the year. Observe the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>Yesterday, the European Central Bank (ECB) reported that rate hawks abandoned their push for a more aggressive tightening move. This may be due to the clear signals from the policy statement and President Lagarde that there would be more hikes (at least two) in the coming months. Lagarde skillfully balanced hawkish messaging to keep the euro supported while also maintaining enough flexibility in policy setting. As a result, the euro is expected to remain well-supported, even on minor dips, at least in the short term.</p><h3>GBP - British Pound</h3><p>The British pound is performing moderately well today, with a 0.3% gain against the weaker US dollar. This has resulted in a new cycle high for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> and the strongest close in a year. Despite early indications of significant losses for the Conservative party in the UK local elections held yesterday, investors appear to be largely unfazed. With around 8,000 local council seats up for grabs, the results so far suggest that the party may lose nearly a thousand of them, which was considered a "worst-case" scenario prior to the vote.</p>

<h3>USD - US Dollar</h3><p>Following the FOMC decision yesterday, the USD is exhibiting mixed trading behavior against its major currency peers. Peripheral currencies such as KRW and NOK are causing the USD to trade softer, whereas there are some minor losses against core majors like JPY, CAD, and GBP, and minor gains against EUR and CHF. The DXY has slightly increased from its overnight lows as the market digests yesterday's developments, which include weaker stocks due to ongoing stress in the US regional bank sector and anticipation for today's ECB policy decision. The Fed has most likely ceased its rate hikes after the 10th successive hike and has adopted a data-dependent approach. Although the policy statement stated that various factors would determine whether additional policy firming is necessary, market pricing reflects that no further hikes will be implemented, and significant rate cuts are expected by year-end. The USD is expected to remain soft but is likely close to fair value in broad terms based on current interest rate differentials. A significant rebound is unlikely, and range trading with a soft bias appears probable for the DXY in the near-term.</p><h3>CAD - Canadian Dollar</h3><p>The CAD is showing little change during the session due to several contrasting drivers. Despite softer stocks, a minor gain for crude oil, and steady spreads, they are providing mixed signals for the CAD. Today, BoC Governor Macklem is participating in a "fireside" chat to discuss the challenges and risks of achieving the inflation target. This chat presents another opportunity for the governor to sound hawkish and remind markets that higher rates could still be considered. Furthermore, the market pricing for rate cuts by year-end (which currently reflects more than 25bps in cuts) is not appropriate. The tone of the comments might differentiate from the newly neutral-looking Fed and give short-term spreads a push in favor of the CAD. The comments will be released at 12.50ET, followed by an audience Q&amp;A and a media press conference (14.15ET). Observe the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>Although the EUR remains firm, it has retreated slightly from the 1.11 area, where it peaked yesterday following an overnight test. The ECB is anticipated to increase its key policy rates by 25bps today, raising the deposit rate to 3.25%. At this point, a 1/4 point hike has been fully priced in, and the market is still inclined to bet on the (small) possibility of the ECB being a bit more aggressive. The data from the previous week has likely reduced the risk of a 50bps hike, but there is a definite group of policymakers who believe in the hawkish side of the outlook and think that policy will need to increase further in the coming months. A clear message from President Lagarde that more hikes are imminent should support the EUR, but a highly hawkish message may be necessary to push <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> above 1.11 and towards the 1.12 area currently.</p><h3>GBP - British Pound</h3><p>The money supply data for March in the UK showed a mostly firm trend with stronger demand for consumer credit and stronger mortgage approval data. However, the data also revealed another net outflow from Gilts among foreign investors, which extended the run of net outflows in recent months. Today's UK local elections are unlikely to have a significant impact on GBP, but it is expected that the ruling Conservatives will experience substantial losses, putting investors on alert for a potential change in political direction at the next general election.</p>

<h3>USD - US Dollar</h3><p>The days leading up to today’s FOMC announcement have been rather tumultuous in markets. The emergency takeover by JP Morgan of the collapsing First Republic Bank did not send excessively negative shockwaves across risk assets, but US regional banks have remained under substantial pressure. All this clearly matters for the Fed as it announces monetary policy today. Market consensus suggests a 25bp rate hike which should mark the end of this hiking cycle as the Fed may rely on the impact of financial conditions deriving from the recent banking crisis to deliver the final bit of tightening.&nbsp; We also have some important data to watch today in the US. The ISM services index will be published four hours before the FOMC statement and is expected to have marginally rebounded after March’s drop to 51.2. ADP employment figures will also be monitored (consensus +145k) ahead of Friday’s official payrolls.</p><h3>CAD - Canadian Dollar</h3><p>In the face of declining stocks and oil prices yesterday, the Canadian dollar underperformed. Despite the fact that there hasn't been any action taken today, the US dollar is still strong and is holding above CAD1.3600. Commodity FX is underperforming somewhat on the session. The AUD is the only major currency that is registering a loss on the weak USD on the day so far after it failed to hold much of the gains made on the surprise RBA hike Tuesday.&nbsp; The CAD still largely trades in the shadow of the USD, although it might find some support today if the FOMC does take a more dovish turn. After widening in late April, short-term US/Canada spreads have moderately reduced in favor of the CAD; this could assist limit the potential for CAD losses. The next upside target is the CAD1.3700-30 area. Observe the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> trends.</p><h3>EUR - Euro</h3><p>Yesterday’s eurozone CPI estimates (for April) came in largely in line with consensus, showing a marginal tick-up in headline inflation from 6.9% to 7.0%. Ultimately, the figures have not convinced markets to make any amendments to the consensus European Central Bank call for tomorrow. Most expect a 25bp “compromise” hike, paired with some hints that more increases are on the way. Today, it will all be about news from the other side of the Atlantic: first US data, then the Fed announcement. We think <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> should face some downside risks today, even though our base case is that it should enter tomorrow’s ECB meeting close to the 1.1000 handle.</p><h3>GBP - British Pound</h3><p>The pound will be entirely driven by external factors this week. Today, the Fed may not have a sizeable impact on the pound, and leave it close to the 1.2500 mark. We don’t see a high chance of last week’s highs (1.2580) being tested again very soon. There are no Bank of England speakers due to the quiet period ahead of next week’s policy meeting.</p>

<h3>USD - US Dollar</h3><p>US banking stress continues to simmer as seen by a further rise ($7bn) for the Fed's Bank Term Funding Programme and speculation over First Republic's future. Adding to this defensive stance is the view that the Fed may not be quick to cut rates because of sticky inflation. This brings us to US price data. Yesterday, the 1Q23 US GDP figures revealed a firmer-than-expected core PCE price release. That means today's March core PCE figure could surprise the consensus 0.3% month-on-month estimate to the upside and argues that inflation is remaining more stubborn than feared. Today we will also see the 1Q Employment Cost Index. This is expected at 1.1% quarter-on-quarter and again will be a key input into next week's Fed's decision. The dollar has shown great sensitivity to this price data recently and any upside surprise could trigger further dollar strength against commodity currencies. European FX should remain a little more insulated given a hawkish ECB and some modest improvement in eurozone GDP data.</p><h3>CAD - Canadian Dollar</h3><p>Canada reports February GDP figures. After expanding by 0.5% in January, activity is expected to have expanded by 0.2% in February. After pausing for the past two sessions, the US dollar is taking another leg higher against the Canadian dollar today. It approached CAD1.3670, a new high for the month. Despite a strong beginning in April, the Canadian dollar's outperformance story was ultimately unsuccessful, and its value has returned to its usual range. The US dollar has experienced six consecutive months of fluctuating gains and losses within a narrow trading band, indicating a significant absence of overall direction in the market. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> is consolidating not far from 1.10 as sticky US price data provides something of a pushback to ECB hawkishness. In focus today will be European 1Q23 GDP data. France has already released an on-consensus 0.2% QoQ reading - with the same expected for both Germany and the eurozone a little later. In addition, we will see German April CPI data - expected at an unchanged 7.8%. We doubt this will really change the market's current pricing of a 30bp at next Thursday's ECB meeting. EUR/USD could remain stuck around this 1.10 area.</p><h3>GBP - British Pound</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> is starting to trade in tight ranges under 1.2500 as US inflation data will keep Fed hawks preoccupied. However, Pressure does look to be building for a move higher later in the year. In the UK, the mood music is slightly improving with business confidence edging higher. Warmer relations with the EU seem to be helping the tone. Today the focus will be on US and European data - which can probably leave GBP/USD in a 1.2400-1.2525 range.</p>

<h3>USD - US Dollar</h3><p>Yesterday we considered how the rally in the dollar in the first part of the week appeared unlikely to be sustainable. The recent dovish repricing in Fed rate expectations eventually caught up with the dollar, which sold off across the board yesterday despite global equities remaining under pressure on lingering concerns over regional banks in the US and weak earnings in Europe. Today, data-wise, we’ll see the release of first-quarter growth figures in the US. Most expect a below-consensus 1.5% quarter-on-quarter annualized print. Consumer spending should be strong in line with robust retail sales in January which were boosted by unseasonably warm weather. However, weaker net trade and inventory performance should offset that story. Like any Thursday, some focus will also be on initial jobless claims, which we expect to come in at 250k, in line with consensus.</p><h3>CAD - Canadian Dollar</h3><p>The CAD has traded in a very narrow range against the USD in today's low-volume market. Despite marginal gains against the USD, the CAD is struggling to move out of its shadow amid the decline in crude oil prices and other commodities. According to the minutes from the BoC's April policy meeting, policymakers discussed a potential rate hike due to strong growth and persistent inflation. However, Governor Macklem has indicated that interest rates may increase further to combat inflation, and the minutes did not provide any new insights into the rate outlook. The BoC decided to keep interest rates unchanged and will wait for additional economic data before making a decision in June. The current expectation in the market is that the BoC will maintain this holding pattern through the middle of the year, although there is now a risk of a rate cut later in the year, which the Bank will want to minimize. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>The big rally in <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> yesterday was a testament to how markets seem to favor the euro among other currencies in instances when the dollar falls on the back of Fed dovish repricing and US banking concerns. Market perception is that investors favour currencies that can offer both an ongoing domestic tightening cycle and still some room for a hawkish surprise at the coming meetings. In that sense, the euro is one of the very few currencies that can offer this combination compared to peers. Today, a stabilization around 1.1050/1.1100 seems likely, although a break above 1.1100 could trigger another substantial rally in the pair. On the data side, the eurozone’s calendar only includes the economic confidence data for April, which is not very market-moving.</p>

<h3>USD - US Dollar</h3><p>The USD has slightly increased after declining in early Asian trade, but the overall market sentiment suggests a high level of risk aversion. In Europe, stocks are weaker and US futures have declined by 0.4% for the session. Bank stocks in Europe are not performing well as investors are shifting their attention to the regional bank situation in the US. First Republic shares have sharply dropped by more than 20% in pre-trading due to an "unprecedented deposit" flight and the bank withdrawing guidance last night. European bank stocks have decreased by about 2.5% on the day, indicating another volatile day for the sector. The prices of crude oil and iron ore are also down. It remains to be seen if the bank's concerns can significantly boost the USD, as the gains have been slight. The market will likely perceive a broader problem across the bank sector as an obstacle to the tight Fed policy. There is more data available today, including the Apr Philly and Richmond Feds' manufacturing surveys, housing data, and the Conference Board's Consumer Confidence measure. However, economic news is unlikely to have a significant impact, and primary focus will be on stocks</p><h3>CAD - Canadian Dollar</h3><p>As risk appetite decreases and investors steer clear of commodity FX, the CAD is facing struggles once again. The CAD is being negatively impacted by spreads and falling commodity prices. However, the USD appears to be overvalued, which may hinder its gains in the upper 1.35s, at least in the short term. Since there is no domestic data scheduled, the CAD's performance will be significantly influenced by risk sentiment, financial flows, and technical indicators. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>As risk aversion increased, the EUR retreated slightly from its overnight highs in the upper 1.10s. A second peak in the same range might be worrying for EUR bulls. However, the ECB's hawkish stance, which is keeping its options open for the May 4th policy decision, and the market's prediction of more than 25bps of tightening this morning, suggest that any dips in the EUR should be well-supported at the moment.</p><h3>GBP - British Pound</h3><p>The GBP briefly rose above 1.25 during overnight trading before settling back to trade at around the same level during the session. Despite the recent dip in stocks, the pound has not been grouped with the "riskier" currencies, implying that investors view it differently. Look for the pound to be driven by broader market themes on the day.</p>

<h3>USD - US Dollar</h3><p>The release of quarterly earnings in the US continues to paint a better picture for American corporates, with big tech companies beating estimates yesterday. However, concerns about the US banking sector have returned after First Republic’s shares dropped 49% following the larger-than-expected drop in deposits and announced restructuring plans. Ultimately, a risk-off mood has prevailed, despite the overall contagion effect having been significantly more contained than in previous instances in March. In FX, this still translated into a fully-fledged flight to safety with the recovering ground yesterday. The dollar hasn’t really connected with the dovish repricing in Fed rate expectations, with rate cut expectations that have risen steadily since the end of last week. From 55bp of easing priced in by year-end on Friday to 75bp this morning. We suspect that some help to the dollar momentum shown yesterday would need to come from good US data over the remainder of the week. Ahead of the more important GDP and PCE figures tomorrow and Friday, we’ll take a look at durable goods orders and wholesale inventories today.</p><h3>CAD - Canadian Dollar</h3><p>During this trading session, the CAD's value relative to the USD has remained relatively steady. Short-term spreads between the US and Canada have not fluctuated, and there has been a slight increase in crude oil prices. The CAD has also experienced a decline in value compared to the EUR, causing the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=EUR">EUR/CAD</a> to reach a 1.50 handle for the first time since September 2021. Although the CAD initially outperformed in April, this trend has since diminished. Despite this, the CAD still appears undervalued compared to its fair value estimate, and there is currently limited potential for much more USD upside.</p><h3>EUR - Euro</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> continues to hover around the 1.1000 mark, and we think it can find fresh support above that level if some risk sentiment stabilization offers a chance to reconnect with a favorable rate differential. The eurozone calendar is quite empty and the predominance of news coming from the US on the banking and equity sector leaves EUR/USD even more driven by the dollar.</p><h3>GBP - British Pound</h3><p>The pound moved broadly in line with other European currencies yesterday, and we see room for a recovery as the dollar’s momentum may struggle to last. We see room for the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> to re-test the recent 1.2543 highs by the end of the week in a less unfavourable risk environment, and thanks to the pre-Bank of England meeting hawkish narrative which is still offering decent support to the pound.</p>

<h3>USD - US Dollar</h3><p>The current state of the FX markets suggests that traders are exhibiting caution towards taking risks. The recent gains of the USD seem to reflect market sentiment rather than any notable change in the outlook. It is widely assumed that the Fed is on the verge of completing its tightening cycle, with an anticipated 25bps hike next month. After that, it is expected that the Fed will take a step back, while the ECB and BoE continue to gradually increase their rates over the next few months. However, the potential for USD to increase further appears limited, unless there is a significant extension of the Fed hike bets or a reversal in ECB tightening expectations. The challenges for the USD remain apparent, and the market is pricing in an aggressive rate cut by the Fed into 2024 compared to the ECB and BoE. Moreover, the looming debt ceiling issue could negatively impact the USD sentiment during the summer period.</p><h3>CAD - Canadian Dollar</h3><p>The CAD, along with other commodities, is experiencing a decline and is likely to end the week with a weak finish, falling above the 1.35 mark. The weakening of the CAD is a result of a wider gap in US-Canada spreads this week and lower oil prices, which have retreated to pre-OPEC+ supply cut levels. Governor Macklem remarked that the CAD has already factored in the higher rates in the US in compared to Canada, as reflected in its current value. This implies that the CAD has limited potential for upside, based on the policy divergence. The CAD is struggling to maintain a strong position, and investors remain pessimistic. Canada is scheduled to release its February Retail Sales data at 8:30 AM ET, and it is expected that sales will decrease by 0.6% during the month. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>Despite the USD's efforts to gain strength, the EUR has remained relatively robust. The initial PMI data for April in the Eurozone showed mixed results, as the manufacturing activities in France and Germany weakened. However, there was much better-than-anticipated growth reflected in both the services and composite data. The Composite PMI for the Eurozone increased to 54.4, surpassing the anticipated 53.7, indicating that growth might be gaining further momentum, thereby supporting the expectations of additional rate hikes by the ECB in the future.</p><h3>GBP - British Pound</h3><p>The GBP has shown some weakness against both the USD and EUR after a series of mixed data reports from the UK. In March, Retail Sales fell more than anticipated at 0.9% month-over-month. However, the preliminary PMI data for April, mostly positive, showed that while manufacturing activity has softened, both Services and Composite data were considerably better than expected. This suggests that growth momentum is slowly picking up in the UK, supporting the outlook for more tightening by the BoE in the upcoming months.</p>

<h3>USD - US Dollar</h3><p>Yesterday’s release of the Fed's Beige Book ahead of the 3 May FOMC meeting showed no material weakening in activity after the failures of two US banks in early March. Several Fed districts noted tighter credit conditions but not any significant weakening in activity. The report should not interfere with the market's 89% probability pricing of a 25bp Fed hike on 3 May and does not seem to provide much fuel yet to the bearish dollar narrative. For today, all the Fed speakers are after the European close and the market will have second-tier data to digest including weekly initial jobless claims and existing home sales.</p><h3>CAD - Canadian Dollar</h3><p>The US dollar is edging higher against the Canadian dollar. It is rising for the fourth session in the past five and reached a high of 1.3480 overnight.&nbsp; The next technical hurdle is seen in the CAD1.3500-20 area. Inflation data fell in line with expectations earlier this week slipping to 4.3% in the March year. The “no rate cut this year” messaging from the BoC since last week’s policy decision seems to be resonating with markets; swaps are pricing in much less risk of a rate cut in the coming months, with the Dec implied policy rate priced around 4.40%. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD’s</a> attempt to correct lower proved short-lived yesterday despite broad risk-off and higher rates across the board. Unchanged Eurozone CPI for March was shrugged off as the domestic macro news flow is set to pick up towards the end of the week. Friday’s flash PMIs will be eagerly awaited for insight and direction. EUR/USD rate spreads still remain at the mercy of a reality check with regards to the Fed prospects, as we continue to see any rate cuts embedded for the end of the year as premature. This leaves EUR/USD’s balance of risks tilted to the downside for the near term.</p><h3>GBP - British Pound</h3><p>Yesterday's release of higher-than-expected March UK inflation has seen the pricing of the Bank of England cycle push up to a new cycle high. The market now prices the current 4.25% Bank Rate being taken close to 5.00% by November. The BoE may not choose to push back against this pricing until the 11 May rate meeting - where a 25bp hike looks likely. Tomorrow we see the release of March retail sales and the April PMI numbers - which could shed light on how the economy is coping with higher rates. <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> could creep back to 1.2500 should any of today's US data add to some early indications of a slowing US economy.</p>

<h3>USD - US Dollar</h3><p>The US dollar has continued to trade at weaker levels after initially suffering a sharp sell-off yesterday in response to the release of the latest US CPI report for April. US rates have corrected lower again in response to market participants scaling back expectations for further Fed rate hikes and pricing in more cuts later this year. While the monthly rates of headline and core inflation were broadly in line with expectations in the April US CPI report, the underlying details provided further encouragement that inflation pressures are easing. It was the weakest monthly reading since July 2022, and has further slowed the annualized rate of growth to 4.1% over the last six months down from a peak of 7.8% in the six months to June of last year. The Fed’s latest updated policy guidance has stressed that the upcoming policy decisions will be more data dependent. The CPI report supports the US rate market expectations that the Fed should keep rates on hold in June.</p><h3>CAD - Canadian Dollar</h3><p>The US dollar has found a base in the CAD 1.3300-35 area. It has pushed a little above yesterday's CAD 1.3415 high. A move above the CAD 1.3435 area would re-target CAD 1.3500. Looking ahead, we don’t expect the loonie strengthen too much more. We expect the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> to range trade between 1.33 -1.38 in the coming quarters.</p><h3>EUR - Euro</h3><p>European Central Bank speakers are the only highlight in an otherwise empty calendar in the eurozone in the second half of the week. The latest ECB remarks have not had a huge impact on the euro. After all, a 25bp hike in June is highly likely after President Christine Lagarde explicitly said the ECB is not pausing, and it is almost fully priced in; beyond that, there is around 22bp of additional tightening embedded into the EUR. <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> remains a dollar – and primarily a US debt ceiling – story for now. There are downside risks that could extend below the 1.0900 in the coming days as a resolution to the debt-ceiling chaos may still follow a bumpy road.</p><h3>GBP - British Pound</h3><p>Markets approach the Bank of England decision day with rather aggressive pricing on future rate hikes. A 25bp move is fully priced in today, although the markets expect nearly two more 25bp increases before reaching the peak around September/November. From an FX perspective, we do not expect this meeting to be a game-changer for sterling. We acknowledge that part of GBP’s recent strength has been due to the market’s aggressive expectations about BoE tightening. <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> may stabilize around 1.26 for now.</p>

<h3>USD - US Dollar</h3><p>The impasse over the US debt ceiling increase is emerging as an increasingly short-term supporting factor for the dollar. A meeting between President Biden and Congress Republicans did not yield much progress on a potential agreement, and while Republican leader Mitch McConnell dismissed the risk of a US default, he admitted the negotiations were at a stalemate. For now, a short-term debt-limit extension, which would be the quickest solution, has been ruled out. Today the US will see the release of the April inflation report. Market consensus suggests a marginal deceleration of core CPI from 5.6% to 5.5%. Today’s inflation may also contribute to putting a floor under the dollar in the near term, even though we remain resolutely bearish on the greenback for the second half of the year.</p><h3>CAD - Canadian Dollar</h3><p>The greenback is trading quietly in a CAD 1.3370-CAD 1.3400 range, just inside yesterday's range. The pair has taken a break from this week’s low of near CAD1.3315. On the upside a move above CAD 1.3415 may signal a range extension toward CAD 1.3450. There’s not much happening domestically leaving the pair to trade on broader market themes. Observe the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>We have not seen the euro score towards the bottom of the G10 daily scoresheet without a strong idiosyncratic event recently. The the common currency is around 2.5% higher against the dollar this year, and only GBP has performed better so far this year (in the G10). We attribute yesterday’s euro underperformance to some position-squaring. There isn’t much in terms of domestic news leaving the euro to be driven by news from the US. There are lingering downside risks for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a>, which might extend to 1.0900 today.</p><h3>GBP - British Pound</h3><p>The pound showed very good resilience yesterday despite a destabilised risk sentiment and an appreciating dollar. This may boil down to markets holding on to some long GBP positions ahead of the Bank of England announcement tomorrow.&nbsp; A good part of the pound’s outperformance relies on the market’s hawkish expectations on the BoE, with 70bp of tightening still priced in this year. In our view, there are good chances this week will mark the last rate hike of this cycle.</p>

<h3>USD - US Dollar</h3><p>Two weeks away from the FOMC May announcement, and markets are now fully almost fully pricing a rate hike (22bp), but the dollar is struggling to lay the basis of a sustainable recovery. Today’s US data calendar is not very busy: MBA mortgage applications and the Fed Beige Book are the only two highlights after yesterday’s housing figures for March came in mixed (housing starts were better, building permits worse than expected). The lack of clear catalysts may leave the dollar positioning slightly tilted to the downside given lingering vulnerability to a potential improvement in risk sentiment now that the May Fed hike is fully priced in.</p><h3>CAD - Canadian Dollar</h3><p>Canada reports March CPI today. The base effect warns of a further slowing. Canada's CPI surged 1.4% last March while the median forecast in Bloomberg's survey projects a 0.6% rise last month. The Canadian dollar is recovering from yesterday's decline. However, like a few of the other major currencies, it recovered about half of what it lost Friday-Monday and stalled. The US dollar tested the 1.3360 area, where it found bids in Europe. The intraday momentum indicators have turned up and there is initial potential back to the 1.3400 area. Look for the loonie to drive direction directly from today’s CPI print. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> is struggling to find clear direction this week, probably lacking a big fresh driver to stage a sustained rally beyond 1.1000 whilst staying supported thanks to a softish dollar environment. There are some data releases worth monitoring in the eurozone this week, but the euro has not shown great reactiveness. Yesterday’s ZEW surveys in Germany were mixed, with expectations dropping sharply but the current situation index recovering much more than expected. This morning, we’ll see March’s final CPI figures for the euro area as well as current account figures. Markets are pricing in 30bp of tightening in May, and a total of 82bp by October. The trading range for the pair may narrow further around 1.09/1.10 in the coming days.</p><h3>GBP - British Pound</h3><p>UK data has continued to point to resilience in inflation and markets are increasingly inclined to bet on Bank of England tightening. Yesterday’s surprise pickup in wages was followed by above-expectations inflation figures this morning. The March report showed headline inflation decelerating from 10.4% to 10.1% versus an expected 9.8% reading, with the core rate holding steady at 6.2%. In light of this data, a 25bp rate hike by the Bank of England looks more likely. Markets are pricing in 23bp of tightening in May, and 60bp in total before reaching a peak.</p>

<h3>USD - US Dollar</h3><p>The USD is trading mixed to slightly lower as the week closes, with a sharp decline this week due to easing inflationary pressures. The DXY is trading just below its January low of 100.82. A potential low close for the week could signal further losses ahead for the USD. Today's economic calendar poses another challenge with upcoming data releases like Import Prices, Industrial Production, and U. Michigan Consumer Sentiment figures. However, the most significant risk for the USD is the expected 0.4% month-on-month decline in Retail Sales data for March. Recent weakening of US data surprises and consumer sentiment may lead to a downside surprise in these crucial data points, further impacting sentiment towards the USD.</p><h3>CAD - Canadian Dollar</h3><p>The USD has lost nearly 1.5% against the CAD this week, with spot consolidating around the low 1.33 range overnight. The CAD has gained strength against the USD due to yield spread compression, firmer crude oil prices, and a rebound in commodity prices. Seasonality and positioning may also be contributing to the CAD's gains. These factors are expected to persist in the short term, potentially pushing gains towards the 1.32 level in the next couple of weeks. BoC Governor Macklem is expected to reiterate a "no rate cuts this year" message during his press conference in Washington today, as swaps are still pricing in a 25 basis points ease by year-end despite his previous statement. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>ECB Governor Knot recently stated that he has not yet decided whether the ECB should hike rates by 50 basis points (bps) in May or scale back to 25 bps. This indicates that there is still uncertainty surrounding the ECB's next steps. Market pricing currently leans towards the possibility of a larger rate hike. Notably, market pricing suggests that ECB hikes may continue later into the year and remain at elevated levels, which could support the narrowing of short-term rate spreads between the EUR and USD.</p><h3>GBP - British Pound</h3><p>The GBP has slightly weakened against the USD overnight, potentially due to losses on the crosses as <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=GBP&amp;from=EUR">EUR/GBP</a> continues to rise towards the mid-0.88s. However, the cross is expected to end the week on a relatively strong note. Despite this, overall trends for the GBP remain positive and are anticipated to continue. There were no significant data reports from the UK this morning. BoE (Bank of England) Governor Bailey is currently in Washington for the IMF spring meeting and is scheduled to meet with US Treasury Secretary Yellen later. Market pricing indicates an approximately 80% chance of a 25 basis points hike at the May 11th policy decision by the BoE.</p>

<h3>USD - US Dollar</h3><p>The US dollar is trading weaker against other major currencies after yesterday's US Consumer Price Index (CPI) data, which pushed the US Dollar Index (DXY) towards its lowest level since early February. European stocks are trading without much change, while US equity futures are slightly stronger. Major bond markets are slightly weaker. The decline in the USD gained momentum during early European trading, although there doesn't seem to be any specific catalyst for the movement. Rather, investor sentiment appears to be driven by the belief that the Federal Reserve's tightening cycle may have limited room to continue, while interest rate hikes in Europe could be extended and remain higher for a longer. Investors may also be anticipating positive news from the upcoming US Producer Price Index (PPI) report, which is expected to show a slowdown in both headline and core measures of inflation. Softer price data would reinforce the market's perception that the peak of the Federal Reserve's rate hike cycle is approaching.</p><h3>CAD - Canadian Dollar</h3><p>The Bank of Canada's rate decision met expectations, with the central bank extending the conditional pause at 4.50%. Policy makers expressed increased optimism that a severe economic downturn could be avoided and that inflation was declining. However, the timeline for prices to slow down to the 2% target was less clear, and the Governor took the opportunity to emphasize that policymakers had discussed the likelihood of keeping policy rates higher for longer to combat inflation. In fact, the Governor outright stated that rate cuts, as implied by market pricing for the year-end, did not seem to be the most likely scenario. The BoC’s press conference appeared to be focused on pushing back against market expectations of a rate cut by year-end and maintaining pricing for a policy rate of 4.25% in December. Additionally, the Canadian dollar was modestly supported by firmer crude prices, which are being extended by the OPEC+ supply cuts, adding tailwinds to the CAD, currently trading at around 1.34. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>Officials at the European Central Bank (ECB) continue to express concerns about inflation. Austrian policymaker Holzmann, known for his hawkish stance, has suggested that a 50 basis point hike could be possible in May. Meanwhile, Villeroy, who is typically considered more centrist and measured, has noted that inflation appears to be more widespread and potentially more persistent. Villeroy also stated that the ECB's tightening cycle is nearly complete, but hinted that further rate hikes may still be necessary in the future. A Reuters report today indicates that policymakers are "converging" on a 25 basis point hike next month, according to anonymous sources.</p><h3>GBP - British Pound</h3><p>Activity data for the UK in February showed a general weakness. GDP remained flat in the month, falling short of expectations for a 0.1% gain. Industrial production also declined by 0.2%, and service sector activity saw a drop of 0.1%. While this data suggests that the UK may avoid a technical recession, the prospects for growth remain dim. Despite the current participation of the GBP in the broader rally against the USD, the weak growth trends are likely to limit the Bank of England's (BoE) willingness to significantly raise interest rates from their current levels.</p>

<h3>USD - US Dollar</h3><p>Core US CPI has been one of the biggest FX movers over the last 12 months and today's March release is expected to show another sticky 0.4% month-on-month reading. Sticky inflation is probably the biggest risk to the consensus views in the FX. Today&nbsp; also sees the release of the 22 March FOMC minutes, where the Fed pushed ahead with a 25bp hike after recently announcing new dollar liquidity programmes. Undoubtedly there will be a lot of noise in the minutes and it is unclear what they will mean for current market pricing of a final 25bp hike in May (75% priced) and a subsequent 60bp easing cycle by year-end. Expect USD to be driven by any surprises on the March CPI today and the sharper reaction (risk negative, dollar rally) would probably come on an upside surprise.</p><h3>CAD - Canadian Dollar</h3><p>The Bank of Canada announced a conditional pause in late January, and although the economy has begun the year a little stronger than it expected, there is no compelling reason to expect it to move today. The target rate is at 4.5%. March CPI will be reported next week. In February, it was 5.2%. It peaked at 8.1% last June. The Bank of Canada forecast its it to fall to 3.6% this year and 2.3% next year. From an FX perspective, the US dollar slipped to CAD1.3450, a four-day low. It has spent little time above yesterday's settlement (~CAD1.3465). Session highs, so far, were recorded in the Europe near CAD1.3470. The next important support area is near CAD1.3400. On the upside, the greenback faces resistance in the CAD1.3500-25 band. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>EUR/USD is enjoying some gentle support as investors return from their Easter break. US core CPI will be the key event of the day and will determine whether <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> has a chance of breaking above 1.10. Apart from the US CPI, look out for several European Central Bank speakers today. The mood seems to be that inflation remains sticky, meaning that expectations for a further 50-75bp of ECB tightening this year will hold. EUR/USD to trade a 1.0900-1.0950 range into the pivotal US CPI release</p><h3>GBP - British Pound</h3><p>The main focus for sterling markets in the near term is whether the Bank of England (BoE) will push ahead with one last 25bp hike on 11 May. This would take the Bank Rate to 4.50%. The market prices an 80% chance of such an outcome. Providing insights into the latest BoE thinking will be Governor Andrew Bailey, who speaks in Washington today. There is a risk that he hints at a pause, having seen fellow central bankers in Australia and Canada do so over recent months. We see 1.25 as a strong barrier for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> especially if the BoE governor gives a nod to a pause in May.</p>

<h3>USD - US Dollar</h3><p>Ahead of a long weekend for many, markets are trading with a mildly defensive tone. European stocks are mostly flat to slightly firmer, while US equity futures are flat to slightly weaker. Bonds are mostly firmer, and crude oil has dipped slightly. US weekly claims data will be released at 8:30 ET, and Bullard will speak at 10:00 ET, who has previously expressed the view that the Fed needs a policy rate above 5%. However, Bullard is not a voter this year. US NFP data will be released on Friday, with most US markets closing early for the long weekend.</p><h3>CAD - Canadian Dollar</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> has traded within the 1.34/1.35 range this week. Canada's upcoming employment report is expected to show a modest gain in jobs, with forecasts ranging from +7.5k to +40k, and a potential slight increase in the unemployment rate from 5.0% to 5.1%. Hourly wage growth may remain elevated and may potentially pick up from February's 5.4% gain to regain 5.5%. The recent Business Outlook Survey indicated some softening in the labor market and wage pressures, but with over half of respondents planning to increase hiring in the next 12 months. Policymakers may have concerns about elevated wage growth, as it could be inconsistent with regaining control of inflation unless accompanied by significant productivity gains in the domestic economy.</p><h3>EUR - Euro</h3><p>Yesterday, the EUR/USD pair experienced a sharp reversal from its high of 1.0970, despite the US services ISM showing a significant decline and a drop of 11 basis points in short-dated US yields. Interestingly, the two-year differential between EUR and USD swap rates is narrowing and approaching levels last seen in early March. This price action confirms our expectation for EUR/USD performance in the upcoming quarter. Despite the negative macroeconomic factors affecting the US dollar, we anticipate that the challenging risk environment could keep EUR/USD fluctuating within a range of 1.05-1.10. we expect <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> to hover around the 1.0900 level today.</p><h3>GBP - British Pound</h3><p>As the UK long weekend approaches, the Pound is drifting with overnight losses close to yesterday's low, aligning with technical indicators that suggest support for the pound. UK Construction PMI data for March came in slightly weaker than forecasted, with the index hovering around the 50 marker for the past few months due to the slide in the UK housing market. Short-term range trading is expected today ahead of the long weekend.</p>

<h3>USD - US Dollar</h3><p>The US dollar is experiencing mixed to slightly stronger trading against its major currency counterparts in a relatively calm market environment. The upcoming Easter holiday may be contributing to the subdued activity, but the USD still appears to be weak and susceptible to further losses. The recent release of second-tier US economic data, which included Factory Orders revisions and JOLTS numbers, did not have a significant market impact but added a bit of pressure on the USD. This reaction highlights investors' sensitivity to the outlook for Fed policy and, increasingly, how quickly US rates will decrease. Narrowing interest spreads are negatively affecting the USD overall, indicating some downside risk (1-1.5%) from current levels. The ADP private sector jobs report for March is due at 8:15 ET, with markets expecting an increase of 210k. Trade data will be released at 8:30 ET, followed by final Services PMI data at 9:45 ET, and the ISM Services data at 10:00 ET, which is expected to show minor slowing in growth. Additional weak US economic reports today may further pressure the USD lower ahead of Friday's NFP data release.</p><h3>CAD - Canadian Dollar</h3><p>The Canadian dollar (CAD) has not been able to gain further ground above the 1.34 level despite a generally weaker US dollar this week, resulting in a slight decline from this week's highs. There have been no major changes, as the US/Canada interest rate spreads remain close to recent lows, and crude oil prices remain strong. The CAD may be under some pressure due to slight weakness in US equity futures, but based on its current valuation, the CAD still appears relatively undervalued compared to fair value estimate. Additionally, seasonal trends are favorable for CAD in April, and the broader headwinds affecting the USD suggest limited potential for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> to rally at this time.</p><h3>EUR - Euro</h3><p>During quiet overnight trading, the EUR remained relatively unchanged. However, the fact that the currency is consolidating above the high from late February/early March suggests that there is strong underlying support for the EUR. In February, German Factory Orders rose by a significant 4.8%, while French Industrial Production increased by 1.2% in the same month. Although the final Eurozone Services and Composite PMI data for March indicated slightly slower growth, overall data trends in the Eurozone support the notion that the economy has avoided a recession. This positive development may allow the ECB to raise rates slightly and potentially maintain restrictive policies for a longer period.</p><h3>GBP - British Pound</h3><p>The final data for UK Services and Composite PMI showed little change from the preliminary data, with the Services activity revised up by a tenth to 52.9. This development supports the notion that the UK economy managed to avoid a recession in the early part of the year, even though growth trends remain sluggish. Prospects for a rate hike are favorable for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP</a>. The market is currently pricing in an 80% chance of a 25bps increase in the BoE policy rate at the May 11th meeting, but only modest declines in the policy rate are expected for the remainder of the year.</p>

<h3>USD - US Dollar</h3><p>The dollar index is now around 3% below its peak of mid-March. Actions by the Fed to address dollar money market stress have allowed investors to (correctly) draw the conclusion that tighter credit conditions make a US hard landing and a sharp Fed easing cycle more likely - a cleanly bearish story for the dollar. Today sees the release of US Jolts Job Opening data for February. A sharp decline here would probably be read as a mildly bearish dollar factor - adding support to the 2H23 Fed easing cycle.</p><h3>CAD - Canadian Dollar</h3><p>The Canadian dollar is higher for the seventh consecutive session. The greenback was testing the CAD 1.38 level as recently as March 24 and now it is testing the CAD 1.34 area. The combination of the increased government spending, higher oil prices and a firm S&amp;P 500 appear to be spurring a short-covering rally in the Canadian dollar. For today, there are not any major domestic drivers, leaving the CAD to trade on broader market themes. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>EUR/USD remains well supported and not far off recent highs at 1.0900/0930. It seems investors are happy to differentiate between the health of the banking sectors in the US and Europe. Calming tensions in US money markets is allowing for a refocus on narrower <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> rate differentials - having narrowed around 50bp since early March. There is not much Eurozone data today, but a further decline in PPI - expected at 13.3% YoY in February - would be welcome. Overall, we suspect that the market will be reluctant to chase EUR/USD above 1.10 yet given concerns about the regional US banking system. That said, a higher EUR/USD certainly looks the direction of travel for the rest of the year.</p><h3>GBP - British Pound</h3><p>The pound continues to perform well and is certainly taking advantage of a weaker dollar. <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> is now approaching strong resistance in the 1.2450/2500 area. These levels could be tested today should the US data come in on the soft side. Domestically, the market will be interested in a speech from Bank of England Chief Economist Huw Pill. Should Pill choose to play up the welcome signs of easing constraints in the UK labor market, expectations of future BoE tightening may dwindle and the pound should weaken.</p>

<h3>USD - US Dollar</h3><p>FX is being driven by diverging monetary policy paths in the US and Europe while swings in the equity market continue to prove unusual. The dollar’s safe-haven status has perhaps been dented by the fact that the banking turmoil has primarily been a US story. Oil-sensitive currencies continue to enjoy decent momentum as we see more upside risks to oil prices. The Canadian dollar is also benefiting from the general improvement in sentiment but lacks a domestic tightening story, so its rally may start to run out of steam sooner rather than later. Today’s calendar sees the third release of fourth-quarter GDP figures, plus speeches by the Fed's Thomas Barkin, Susan Collins and Neel Kashkari.</p><h3>CAD - Canadian Dollar</h3><p>The CAD has been on a mini-run against the USD and continues to hold on to gains through the week. The Federal budget came and went without much impact on the CAD. More spending and more debt are the very basic takeaways. Look for the CAD to possibly target 1.3515 in the short term.&nbsp; For now the CAD is likely to be driven by broader external market themes instead of any internal domestic drivers. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>Preliminary March inflation readings in Spain and Germany will be closely watched today. The German figures will obviously draw greater interest, and consensus expectations are for a deceleration from 8.7% to 7.3% in the headline rate. With the European Central Bank explicitly data-dependent, this week’s inflation figures are set to be an important driver of the market’s rate expectations. There are currently two 25bp rate hikes fully priced in by September, and the bar for another hawkish repricing is set quite high. The <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> rally took a break around 1.0840 and we could see it hover around those levels today, but we still favour a break above 1.0900 and ultimately a test of 1.1000 in the near term.</p>

<h3>USD - US Dollar</h3><p>The dollar bounce yesterday was the result of some position-squaring and below-consensus data, while the still unstable risk environment caused by recessionary fears and the US debt ceiling stalemate keeps creating a breeding ground for more defensive positions in FX. On the data side, jobless claims surprised on the upside and PPI to the downside yesterday – both adding to rate cut bets – while today’s focus will be on the import price index and the University of Michigan inflation and sentiment gauges. FOMC member Mary Daly is scheduled to speak this evening.</p><h3>CAD - Canadian Dollar</h3><p>The greenback jumped almost 0.9% yesterday against the Canadian dollar, the most in two months. The 2.3% slide in WTI appeared have weighed on the Canadian dollar amid the broader US dollar gains. The US dollar briefly above CAD 1.3500. The <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> is likely to be driven by the USD and broader market themes.</p><h3>EUR - Euro</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> continues to follow primarily USD dynamics, and a quiet calendar in the eurozone (final CPI reads are not normally market-moving) means this should continue to be the case today. For now, the USD appreciation was not enough to trigger a break below 1.0900 in the pair, but the lack of some encouraging news on the US debt ceiling story means – in our view – that 1.0900 will hardly prove to be a sturdy support for much longer. On the ECB side, we’ll hear from Germany’s Governing Council member Joachim Nagel. ECB speakers have had a limited impact on the euro after the latest ECB meeting and this should not change for now.</p><h3>GBP - British Pound</h3><p>As we expected, the Bank of England’s 25bp rate hike did not have any major implications for GBP. The drop in GBP yesterday was almost entirely due to the USD rally and was in line with the move in other dollar crosses. The BoE retained its flexibility and kept the door open for more rate hikes if inflation proves persistent. While we don’t exclude one final June hike, most analysts suggest that we have reached the peak of the BoE tightening cycle as inflation will start to rapidly decelerate this year. From an FX perspective, there aren’t many convincing reasons to call for GBP underperformance against its main peers in the near term.</p>

<h3>USD - US Dollar</h3><p>Positive news emerged from the recent high-level meeting between President Biden and Congress Speaker Kevin McCarthy, despite significant differences between the two sides. However, markets are pessimistic as they expected more substantial progress towards a deal. In the foreign exchange (FX) market, the dollar is strengthening as anticipated, but further appreciation is possible once there are clearer signs of progress in debt-limit negotiations. Today, the focus is less on data, and only housing numbers for April will be released, which could be dampened by the decline in mortgage applications.&nbsp;</p><h3>CAD - Canadian Dollar</h3><p>The Bank of Canada's conditional pause in late January has sparked speculation that it may need to raise rates again, as the economy remains resilient and price pressures remain strong. April's CPI increased by 0.7%, surpassing expectations. From January to April, Canada's CPI has risen at an annualized pace of 6.3%. Currently, the overnight target rate stands at 4.50%, with a 75% chance of another quarter-point hike already priced in, while expected rate cuts by year-end have been reversed. The US dollar bounced off the CAD 1.3400 area yesterday, settling near CAD 1.3480. Observe the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> trends.</p><h3>EUR - Euro</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> is under pressure again this morning and we stress how 1.0800 is probably a key benchmark level to gauge market sentiment about the US debt-ceiling story. We could see some support at 1.0800, a break lower could indicate the FX market moving more seriously to price in a US default. The domestic story for the euro has been immaterial and the decline is almost entirely driven by the dollar. Today, we’ll see the final print of the eurozone’s CPI figures for April and we’ll hear from a plethora of ECB speakers.&nbsp;</p><h3>GBP - British Pound</h3><p>GBP has started to edge lower and we expect more downside room against both the USD and EUR. A slowdown in wage growth was one of the two pieces of information the BoE needed to pause its tightening cycle in June, the second one will be some deceleration in inflation (data out on 24 May). Several analysts are calling for a June pause, and given 20bp of tightening are priced in, there is ample room for GBP to be hit by a dovish re-pricing. There are no market-moving data releases in the UK today.&nbsp;</p>

<h3 style="margin-left:0px;">USD - US Dollar</h3><p style="margin-left:0px;"><span lang="EN-CA" dir="ltr">The USD is moderately stronger today, but market sentiment remains cautious due to the US debt ceiling issue, which is currently in the spotlight. Republicans are not in a rush to reach an agreement, and some are skeptical about Treasury Secretary Yellen's proposed timeline for the June deadline. This political maneuvering suggests increased uncertainty in the coming weeks as negotiations approach. Concerns about the Chinese economy's momentum have also impacted local stocks and industrial metals like copper and iron ore. Global stocks have seen significant declines, while bonds have received some support. The release of the FOMC minutes from the May policy decision will provide insights into the rate hike to 5.25% and clarify whether the Fed sees themselves as "not far off" or already "sufficiently restrictive," as Chairman Powell indicated in his post-meeting comments.</span>&nbsp;</p><h3 style="margin-left:0px;">CAD - Canadian Dollar</h3><p style="margin-left:0px;"><span lang="EN-CA" dir="ltr">The CAD is slightly weaker due to weak risk appetite and significant losses among commodity peers. However, it remains within its established range. There is a possibility that the recent sideways trading range could eventually transition into a more dynamic phase of market movement. Our forecast suggests further range trading around 1.35 for spot prices until the end of Q2, but we anticipate a longer-term improvement in the CAD as risk appetite improves in the second half of the year, especially if there is a potential decline in US interest rates. Furthermore, the overall negative sentiment towards the CAD seems to be moderating as US/Canada yield spreads narrow and concerns about a correction in the resilient domestic housing sector appear exaggerate</span><span style="font-family:&quot;Calibri&quot;,sans-serif;"><span lang="EN-CA" dir="ltr">d. </span></span><span style="background-color:rgb(255,255,255);color:rgb(112,112,112);">Observe the&nbsp;</span><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a><span style="background-color:rgb(255,255,255);color:rgb(112,112,112);">&nbsp;trends.</span></p><h3 style="margin-left:0px;">EUR - Euro</h3><p style="margin-left:0px;"><span lang="EN-CA" dir="ltr">Germany's May IFO survey aligns with the weakness observed in the industrial sector as indicated by this week's PMI releases. The overall business confidence reading declined to 91.7 from a revised 93.4, falling short of the expected 93.0 outcome. This marks the first significant setback for the index since October. Despite this, ECB policymakers are unlikely to back down from their plans to raise rates. The recent hawkish comments, strongly suggesting further tightening measures in the future, could potentially slow down the EUR's recent decline against the USD.</span></p><h3 style="margin-left:0px;">GBP - British Pound</h3><p style="margin-left:0px;"><span lang="EN-CA" dir="ltr">UK April inflation data exceeded expectations by a significant margin. Headline prices increased by 1.2%, surpassing the forecast of 0.7%, while core inflation accelerated to 6.8% from 6.2% in March. The GBP initially surged against the USD as markets priced in the likelihood of more tightening by the Bank of England (BoE). However, it subsequently experienced a sharp decline, reaching new session lows around 1.2375/80, as investors became concerned about the potential economic impact of further rate increases. BoE tightening expectations have been adjusted, with swaps now reflecting approximately 75 basis points of tightening in the coming months.</span>&nbsp;</p>

<h3>USD - US Dollar</h3><p>The upward momentum of the USD continues amidst uncertainties surrounding the US debt ceiling, a relatively stable-to-weakening stock market, and increasing US yields. Speaker McCarthty expressed optimism regarding the possibility of reaching a debt agreement before June 1. The recent downgrade of the US's AAA rating by Fitch, based on fair value estimate models, may have motivated both parties to be more inclined towards reaching a consensus. The minutes from yesterday's FOMC meeting did not provide substantial guidance for the markets, indicating that policymakers themselves have a significant level of uncertainty about future actions. The issue of the debt ceiling likely influenced the language used, hinting at a potential pause in June but keeping the possibility of resuming interest rate hikes in July open. Today's schedule includes more speeches from Federal Reserve officials, while recent data on weekly claims in the US labor markets have shown some signs of softening.&nbsp;</p><h3>CAD - Canadian Dollar</h3><p>The wider, sideways trading that has characterised spot movement over the past few months is still present as the CAD continues to range trade against the USD. In the past month or two, the CAD has gained some momentum on the crosses, riding the recent recovery in the USD against the majors; a slightly firmer tone has also emerged against the EUR and GBP. That could signal a modest shift in the CAD's potential relative to the USD, and we do observe that the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> is now trading at levels that are somewhat over what we would consider to be spot fair value (1.3291). This may restrict the USD's ability to rise above 1.36.&nbsp;</p><h3>EUR - Euro</h3><p>The German economy contracted for a second consecutive quarter in Q1 after contracting in Q4 according to (adjusted) GDP figures, indicating that the country entered a recession after the turn of the year. Initial projections showed little growth in Q1. Although inflation is still the ECB's major worry, weak economic dynamics won't stop the central bank from proceeding with additional rate hikes in the coming months. Softer than expected statistics have added to the headwinds facing the euro.&nbsp;</p><h3>GBP - British Pound</h3><p>GBP has performed better than average for the session. The UK's energy bills are expected to drop significantly, which is good news for the pound. A 17% decrease in average home energy costs is predicted by new price cap standards, providing some relief from the pinch caused by rising cost of living.&nbsp;</p>

<h3>USD - US Dollar</h3><p>The USD is declining as markets gain momentum after a slow trading day on Monday. The decrease in the USD's value is evident across the G10 majors, while global stocks remain stable or slightly stronger. Bond markets are performing well due to the apparent resolution of the debt ceiling issue, which is increasing risk appetite and negatively affecting the USD. Although there may be a slight increase in USD demand from month-end flows, investors are primarily focused on policymakers' actions in the upcoming weeks, as it will impact the direction of the foreign exchange market. The FOMC is expected to skip the June 14th decision and reassess in July. This morning, there is significant data on housing, consumer confidence, and regional activity in the US. China will release PMI data tonight.&nbsp;</p><h3>CAD - Canadian Dollar</h3><p>The Canadian dollar (CAD) is showing some strength in the trading session but remains near yesterday's high against a generally weaker US dollar (USD). The decrease in US yields may contribute to additional spread compression, which is supportive of the CAD. However, the CAD faces challenges from generally soft commodity prices (WTI is trading around 2% lower), which hampers its potential for appreciation due to weak terms of trade. The CAD's upward potential may be limited to the low to mid 1.35s in the near term. Canada will release Q1 Current Account data at 8.30 ET. Observe the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> trends.</p><h3>EUR - Euro</h3><p><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> has quietly slipped below support at 1.0700/1.0720 and may be making its way to the March lows at 1.0515/0530. For today, the eurozone focus will be on the release of industrial and consumer confidence figures for May. Consensus expects some further deterioration here and if so this should keep EUR/USD on the soft side. We will also hear from a raft of ECB speakers today. Expect more hawkish rhetoric especially in advance of the May eurozone CPI data on Thursday. &nbsp;</p><h3>GBP - British Pound</h3><p>Money markets now price 100bp of Bank of England tightening by November. This would put the Bank Rate at 5.50%. UK data will do most of the talking and it will probably be the jobs/wages data (13 June) or the May CPI data (21 June) which will be the key determinant on whether the market reins in aggressive tightening expectations. Until then support around the 1.2275/2300 area may hold temporarily.&nbsp;</p>

<h3 style="margin-left:0px;">USD - US Dollar</h3><p>Once again, the US dollar is recovering and making slight gains against major currencies in the G10 group. As concerns about the debt ceiling diminish, US Treasury yields are decreasing, while hawkish statements from Federal Reserve officials are reinforcing the possibility of a June interest rate hike, although expectations are cautious. Richmond Fed President Barkin acknowledged the restrictive nature of current policies but expressed concerns about high inflation and the need for clearer signs of diminishing demand. Mester, on the other hand, stated that there was no justification to pause the process of tightening monetary policy. Both Barkin and Mester are voting members of the Federal Open Market Committee (FOMC) this year, and the pricing for the June FOMC meeting has remained relatively stable, with around a 16 basis points increase factored in. Now that the debt ceiling issue seems to be mostly resolved (after clearing the House Rules Committee hurdle yesterday, a vote in the House is expected today), market focus will shift to the release of the May Non-Farm Payrolls (NFP) report on Friday. While the consensus forecast stands at 195,000, market expectations lean slightly towards higher print.</p><h3 style="margin-left:0px;">CAD - Canadian Dollar</h3><p>The Canadian dollar (CAD) is facing downward pressure, reflecting the broader gains made by the US dollar (USD), as well as a slight decline in stock markets and further decrease in energy prices (with WTI trading at around $68). The USD/CAD pair's gains have pushed the exchange rate back to the mid to upper 1.36 range, where the USD's recent advances have encountered resistance. Today, Canada is releasing GDP data for March and the first quarter. While growth data for March is expected to show a slowdown compared to February, overall, the first quarter has been shaping up to be relatively robust. The flash estimate for April may provide an early indication of potentially slower growth ahead. However, this does not undermine the belief that the Bank of Canada (BoC) should implement some additional precautionary tightening measures, considering persistent inflationary pressures and signs of renewed activity in the housing market. Weaker growth data could further intensify near-term pressure on the CAD.</p><h3 style="margin-left:0px;">EUR - Euro</h3><p>The EUR has declined by slightly over 0.5% in trading, falling below 1.07 and reaching its lowest level since late March. France's May Consumer Price Index (CPI) came in lower than anticipated, and German state data indicate a below-consensus outcome for the national figure this month (expected to be +0.2% month-on-month). As a result, market expectations for European Central Bank (ECB) interest rate hikes have been slightly reduced, leading to a weaker EUR and implying limited potential for a rebound in the currency at this stage.</p><h3 style="margin-left:0px;">GBP - British Pound</h3><p>The British pound (Sterling) is experiencing a decline, similar to other European currencies, due to the overall strength of the US dollar. Survey data for May revealed a decrease in business confidence in the UK, although the Lloyds Business Barometer, which provides this information, typically does not have a significant impact on the market. The depreciation of GBP is primarily driven by the overall strength of the USD.&nbsp;</p>

<h3>USD - US Dollar</h3><p>The dollar enjoyed a rally thanks to strong JOLTS job opening data but sold off later due to comments from Federal Reserve speakers. They suggested a potential rate hike 'skip' in June but left the door open for a hike in July. This indicates a new communication tool for the Fed's tightening cycle. Today, we have ISM Manufacturing, Initial Claims, ADP employment report, and later, weekly US crude inventory data. Brent remains weak, and a large inventory build could keep it low, affecting oil-exporting currencies before the OPEC+ meeting this weekend. The greenback is expected to remain rangebound until tomorrow's NFP report.&nbsp;</p><h3>CAD - Canadian Dollar</h3><p>The Canadian dollar is extending slight gains, continuing its upward trend in calm trading conditions. Yesterday's release of Canada's GDP data indicated a strong and robust economy. The first quarter GDP surpassed expectations and exceeded the Bank of Canada's projections. Furthermore, the monthly data revealed that March's economic activity remained resilient, surpassing forecasts and showing promising signs for a smooth transition into April. These positive indicators increase the likelihood that the Bank of Canada will hike by an additional 25bp at its next meeting in June. With solid economic data and the recent narrowing of spreads between the US and Canada, look for the CAD to received a short-term boost against the greenback. Observe the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</p><h3>EUR - Euro</h3><p>Declines in German, French, and Spanish May inflation data have sparked speculation about a potentially weak flash CPI figure for the eurozone today. Market consensus predicts a drop in the headline inflation rate from 7.0% to 6.3% year-on-year, while the core inflation is expected to decline from 5.6% to 5.5%. If eurozone inflation falls faster than that of the US, it would surprise the market, as it had anticipated the US inflation rate to decrease more quickly due to the greater weight of assets. The recent softness in European inflation has also led to a drop in eurozone swap rates compared to those in the US, widening the two-year EUR:USD swap differential, which has negatively impacted <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a>. Unless there is a significant surprise in the eurozone CPI data, it is likely that EUR/USD will trade within a range of approximately 1.0650-1.0720 today.&nbsp;</p><h3>GBP - British Pound</h3><p>The British pound (GBP) continues to show strong performance. Although there has been a slight reduction in the aggressive tightening expectations for this year (previously estimated at 110 basis points), the adjustment has been minimal. Speculation arose regarding a speech by Catherine Mann, a Bank of England hawk, yesterday, suggesting she might push back against these tightening expectations, similar to what the BoE did last year when the market priced in a Bank Rate of 5.50%. However, in line with her tendencies, Mann cautioned that UK consumers were utilizing their excess pandemic-related savings for spending purposes, while corporates were capitalizing on improved pricing power to increase their profit margins. The market is currently pricing in approximately 100 basis points of tightening for this year.</p>

<h3 style="margin-left:0px;">USD - US Dollar</h3><p style="margin-left:0px;">Thursday saw a notable change in direction for the dollar. The news of the Federal Reserve's intention to skip a rate hike in June, along with progress on the debt ceiling deal, led to a 0.8% decline in the USD. Whether this signifies a significant reversal for the dollar depends largely on the upcoming US activity data, especially price data, which will determine if the Fed has enough leeway to assess the impact of the 500 basis points of tightening thus far before rushing into further hikes. The anticipation of additional rate hikes heavily influenced dollar pricing and bearish risk sentiment last month. The release of today's US NFP (Non-Farm Payrolls) data will play a crucial role in deciding whether the Fed will proceed with rate hikes in June. From a foreign exchange perspective, we believe that a consensus-based increase of 195,000 jobs, an unemployment rate of 3.5%, and a 0.3% monthly rise in hourly earnings would not be sufficient to alter the prevailing view that the Fed will pause in June and the dollar will continue to remain relatively weak.</p><h3 style="margin-left:0px;">CAD - Canadian Dollar</h3><p style="margin-left:0px;">Today, the Canadian dollar is continuing to strengthen. Over the past five sessions, the US dollar has experienced declines in four of them. If the CAD 1.3400 level is broken, it could indicate a test of the lower end of the range for this year, which is between CAD 1.3260 and CAD 1.3300. Based on the intraday momentum indicators, there is a likelihood of a rebound during early North American trading, and the initial resistance is expected around the CAD 1.3450 level. It is worth noting that in an environment where the US dollar is weak, the Canadian dollar tends to perform relatively worse in currency crosses. Observe the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> trends.</p><h3 style="margin-left:0px;">EUR - Euro</h3><p style="margin-left:0px;">Despite Eurozone May inflation dropping more than anticipated, the EUR/USD experienced a rally. One possible factor supporting the EUR/USD was a slightly optimistic reassessment of global growth prospects. There is a growing belief that the late-cycle inflation might not be as severe as previously thought, which could lead to central banks avoiding extensive tightening measures that could worsen recessions. In relation to the European Central Bank (ECB), the market is currently factoring in two additional 25 basis point rate hikes. The outcome of today's US data will play a significant role in determining whether the recent low of 1.0635 for EUR/USD was a significant level. If the NFP (Non-Farm Payrolls) data doesn't indicate excessive strength, there is a possibility of EUR/USD reaching the 1.0810/20 range, with an outside chance of reaching 1.0865.</p>

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