Daily Currency Update

USD - US Dollar

The dollar is under pressure ahead of today's key US CPI report, with influences from both domestic and external factors. Domestically, yesterday's higher-than-expected core PPI figures for April raised some concerns, although optimistic revisions and decreases in certain price components have also been noted. However, markets may be overly optimistic, especially considering the rise in portfolio management fees and potential impacts from California's minimum wage hike. Federal Reserve Chair Jerome Powell's recent speech suggested rates will remain high, but the Fed's communication has shifted only slightly hawkish despite recent price data.

Internationally, potential Chinese state support for the housing market has boosted the Aussie and New Zealand dollars, keeping the US dollar lower in Asian markets. Today's anticipated core CPI of 0.3% MoM, in line with consensus, along with retail sales data, could influence the dollar's trajectory. However, if CPI aligns with forecasts, the dollar may stabilize in a low volatility, directionless market.

CAD - Canadian Dollar

The CAD is on the rise, reaching around 1.3630 in early Wednesday trading, bolstered by the weakening USD in response to the US PPI data. The Royal Bank of Canada has recently adjusted its forecast for the USD/CAD pair to 1.3700 by mid-2024, citing diverging interest rate paths in the US and Canada. The Bank of Canada is expected to cut rates four times in 2024, contrasting with the Fed's hawkish stance to maintain higher rates for an extended period.

EUR - Euro

The EUR has seen a robust uptick, reaching levels not seen since early April, driven by recent macroeconomic data that suggest the European recession may be abating. The Euro surged past 1.08 on Tuesday and continued its ascent amid anticipation of the upcoming US inflation data. While the Euro shows signs of being overbought in the short term, it maintains strong momentum that could be sustained if US inflation data underwhelms.

GBP - British Pound

GBP has reached a new weekly high, approaching the 1.2600 resistance in Wednesday's session. This third consecutive session of gains is fueled by the weakening USD and uncertainty regarding the interest rate cuts by BoE. The UK's employment report for March underscored a continuing deterioration in job market, raising concerns among BoE policymakers about persistently high service inflation, which complicates efforts to reduce overall inflation. BoE Chief Economist Huw Pill recently emphasized the necessity of maintaining restrictive monetary policies to combat inflation effectively, hinting at a cautious approach to any upcoming rate adjustments.