USD

The US Dollar is approaching a two-month high as ongoing debt ceiling negotiations unfold in Washington.  Investors still perceive the Dollar as a safe haven despite the associated risks of a US default.  Recent economic data and hawkish remarks from the Federal Reserve also support the Dollar’s strength.

On the data front, Yesterday’s US PMI data showed the private sector experienced its fastest expansion since April 2022, with service sector growth reaching a 13-month high, while manufacturing production saw modest gains – although the latter came in below expectations.

Up next, markets will eagerly anticipate today’s release of the Fed’s May meeting minutes, which could provide valuable insights into the bank’s policy outlook. 

Market expectations suggest a 27% likelihood of an interest rate hike in June.  

EUR

After dropping 0.4% yesterday, the Euro is shifting in and out of gains this morning as a quiet European calendar against a backdrop of the debt ceiling standoff in Washington keeps EUR/USD pinned near the March low.

The lone data release out of Europe this morning came from Germany.  Its Ifo Business Climate indicator dropped to 91.7 in May, falling short of expectations and marking the first monthly decline since October.  The decrease was driven by worsening industry expectations due to rising interest rates and high inflation, leading to a negative outlook for the future and a negative assessment of the current business climate.

GBP

The Pound has experienced notable volatility this morning following April’s consumer price data release.  While Core CPI dropped to 8.7% from 10.1% year-on-year, it fell short of the Bank of England’s expectations of an 8.4% decrease.  GBP/USD pair initially rose on the news but has since reversed course and now trades in the red heading into the US session.

Traders are increasingly pricing in the likelihood of another rate hike in June, which is typically bullish for the currency in question.  However, the persistently high inflation that the UK is experiencing could require much higher interest rates to combat, putting a deeper strain on the British economy and ultimately weighing on the Pound.

JPY

The Yen is one of the few majors to show strength against the Greenback this morning as USD/JPY inches lower as risk-off sentiment props up the Yen.  

Earlier today, another look at the Japanese manufacturing sector showed positive sentiment in May, as indicated by the Reuters Tankan sentiment index turned positive for the first time this year.  Manufacturers expect further improvement in the coming months, particularly in the auto and oil refining industries.  However, global challenges and high inflation continue to impact consumer spending and dampen sentiment in the service sector.

CAD

The Loonie’s volatile week continues today as it falls back to last week’s lows.  With a blank Canadian economic calendar for the rest of the week, the Loonie is at the mercy of US data, broad market sentiment, and oil prices.  While the current cautious market sentiment favors the Greenback, this week’s 3% surge in WTI prices has helped the Loonie pushback against the Dollar and limit its losses.  The latest jump in oil prices comes as concerns over potential OPEC+ production cuts and unexpected declines in US crude inventories prop up global oil prices.

MXN

After a dismal six-day stretch of losses, the Mexican Peso is on the rebound this morning on the heels of new inflation data out of Mexico.

May’s first half-month core inflation index showed a 0.18% rise in domestic prices, just below the expected 0.21% increase.  However, the headline inflation figure showed a 0.32% decline – much more than the 0.19% decrease expected.  

Looking ahead, Mexico’s current account data is set for release tomorrow, with the market bracing for a deficit in Q1 after posting a surplus in Q4.    

BRL

The Brazilian Real is moving higher this morning, in sync with many of its LATAM peers, after posting a minor loss against the Greenback yesterday.  With BRL now up over 1.2% on the week, it has erased more than half of last week’s losses and is pushing back toward the June 2022 low.

With no major releases on the calendar today, all eyes are on tomorrow’s mid-month inflation release for May.  Expectations are for prices to have risen by 0.64% in the first 15 days of May, which could keep Brazilian Central Bank Governor Campos Neto further entrenched in his gloomy inflation outlook and hawkish stance on interest rates.

CNY

The Yuan is pushing back against the Dollar this morning after falling to six-month lows yesterday.  Without any new data out of China this week, CNY traders will keep much of the focus on US-China relations.

Following China’s recent ban on the sale of chips by US chipmaker Micron, the chair of the US House of Representatives Committee on China recommended that the US Commerce Department impose trade restrictions on Chinese memory chip maker Changxin Memory Technologies.  The move adds to the growing tensions between the two countries, further strained by recent actions by China’s push toward deeper economic ties with Russia.