USD: The Fed Powell has reiterated the FOMC’s patient stance at his semi-annual testimony to the US Senate on Wednesday and Thursday. That being said, we expect the US policymakers to continue to move closer to policy normalization in coming months and this to boost the USD rate and yields advantage across the board. In turn, most maintain a constructive outlook on the USD. In addition, to the extent that tighter US financial conditions also keep risk sentiment subdued, the USD could remain supported vs risk-correlated and commodity currencies.
On the day, the focus will be on the US retail sales and the University of Michigan sentiment indicator for June. Ahead of the data, most expect the retail sales to soften further by -0.4% MoM. In addition, the US consumer confidence is expected to rebound. All said, the USD is likely to maintain supportive over the short term.
CAD: Post the BoC, the loonie has traded very poorly despite the BoC being one of the most hawkish Central Banks in the market. The BoC are still delivering a hawkish message and with the vaccination process supportive for the domestic recovery i n Q3. Weaker oil prices are perhaps dragging on CAD sentiment to a modest extent and while Canadian yields have shed a few bps. The CAD reacted positively to the initial headlines around the policy decision but gave back gains very quickly. Still, the basics were positive for the CAD; asset purchases were trimmed, as expected, guidance still pointed to rate hikes in H2 next year.
EUR: Another quiet overnight session saw the EUR trade in a narrow band. The ECB continues to suggest that they do not expect monetary policy to be tightened for a long period. Next week’s ECB meeting will likely see a great degree of divergence among the council as the more hawkish members will seek a PEPP tapering soon. The EUR should continue to trade rangebound in the near-term amid limited tailwinds while we await post reopening data and next week’s ECB decision.
GBP: Employment data released this morning, saw Employment rise less than forecast, although the Unemployment rate fell and Average weekly earnings were higher, although there has been little reaction. Most analysts are still on the side-lines in GBP given the battle between what is expected to be a more hawkish BoE and the continuing rise in Covid cases, which will weigh on GBP at some point.
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