Weekly Currency Update

USD - US Dollar

• The financial markets have responded to a preliminary agreement on the debt ceiling with a sense of relief, but little else. On Sunday, President Biden and Speaker McCarthy reached a deal that prevents the United States from defaulting on its debts. Now, Congress must pass the agreement, which will require some effort to gather enough votes since both sides had to make compromises. Nevertheless, this should put an end to the ongoing saga for the time being, allowing the markets to shift their attention back to more fundamental matters such as data and monetary policy, among others. The market activity has been relatively subdued overnight, partly due to the long weekend in the United States. While US equity futures show a slight increase, European and Asian cash markets experienced mixed or somewhat lower performance. Notably, there are no significant data reports expected from North America today, suggesting a quiet trading session ahead. However, the flow of funds at the end of the month might influence trading in the next couple of days until the markets start paying closer attention to upcoming data releases, such as the US Manufacturing ISM and Non-Farm Payrolls (NFP), towards the end of the week.

CAD - Canadian Dollar

• As the month comes to a close, the Canadian dollar (CAD) is showing very little movement against a generally stronger US dollar (USD). This performance places the CAD towards the weaker side of its trading range compared to the USD, and it continues to face difficulties in establishing a clear and stronger overall trend. In the short term, it is anticipated that the USD will maintain its strength, but it might encounter challenges in making substantial gains against the CAD in the upcoming week or so. Expect to see further range-bound trading, with the possibility of increased selling interest as the USD makes modest gains in the short term. Observe the USD/CAD trends.

EUR - Euro

• The euro (EUR) is hovering near the lower range of 1.07, slightly above last week's market close. At its current levels, the EUR appears to have some potential attractiveness. Following a prolonged decline throughout May, its valuation has become relatively more appealing. Additionally, there is a growing consensus among European Central Bank (ECB) policymakers that the central bank has the capacity to complete at least two interest rate hikes in the upcoming policy meetings (June and July), with the possibility of a third hike in September. However, the prospect of a 4% policy rate still poses a risk for the EUR.

GBP - British Pound

• During the calm overnight trading session, the British pound (GBP) has remained within a narrow range. Today, there are no data releases from the United Kingdom (UK). However, the market has been positively influenced by a series of UK data reports that have exceeded expectations, leading to heightened anticipation that the Bank of England (BoE) will need to adopt a more substantial policy tightening approach to address inflationary pressures. Market participants are currently factoring in the likelihood of approximately 100 basis points (bps) of additional interest rate hikes from the current rate of 4.50%. Furthermore, some former BoE officials have suggested over the weekend that even this anticipated level of tightening may not be sufficient to address the situation adequately.