USD

The next Fed meeting is in under two weeks, and markets have firmly settled on a 25bps hike. When writing, market-implied expectations had risen to 86%*. This is probably high enough for us to call it a ‘done deal.’ Only a complete meltdown in next week’s US data, or another broader market wobble, is likely to derail the Fed. Aiding the gradual increase in expectations has been a relative army of hawkish Fed speakers. However, today marks the last day before we enter into the Fed’s self-imposed quiet period. The dollar has edged higher this week, despite a plethora of weaker US housing data. The dollar index (DXY) has risen by over 0.35%. Today’s PMI survey is expected to reflect moderate softening across the board, with Manufacturing remaining under the critical 50 threshold.

*Source: CME Markets 

EUR

The ‘large majority’ of the governing council agreed with Chief Economist Philip Lane’s proposal to raise rates by 50bps, during their most recent meeting, according to the ECB’s accounts. They also confirmed that ‘monetary policy still had some way to go to bring inflation down.’ Markets currently expect the ECB to follow that meeting with at least two more 25bps hikes over the coming months. This has been a good tailwind for the single currency. Hawkish ECB rhetoric has also been supporting the move. As a result, EUR/USD has had a fairly flat week. 

GBP

Another batch of weak UK economic data releases has highlighted the difficult challenge for the BoE. On the one hand, headline inflation remains above 10%, marking the highest reading for any Western country. However, Retail Sales declined by 0.9% over the past month, and a mixed PMI survey puts a big question mark around the BoE’s ability to raise UK interest rates further. Sterling succumbed to the weaker data this morning, with GBP/USD falling by around 0.5%. 

JPY

The latest report released overnight showed an unexpected increase in Japanese inflation. Headline CPI accelerated to 3.2%, versus 2.6% expected, with core CPI jumping to 3.8% against an estimated 3.4%. The news has helped to propel the Yen, with USD/JPY falling around 0.8% and EUR/JPY witnessing a similar decline. While the news is unlikely to derail the BoJ’s policies, it may make for some uncomfortable moments, given their recent announcement expecting inflation to decline. 

CAD

Today’s Canadian Retail Sales are expected to continue with the theme of moderating economic data. The latest estimates point towards a 0.6% decline over the past month, having risen by 1.4% previously. Canada appears to be following the same path as the UK, with higher inflation impacting consumer spending. USD/CAD has had a strong week, rising by over 1.3%, fuelled partly by a 5% drop in oil prices. 

MXN

Weaker US data helped the Peso to snap a two-day losing streak. This led to an overall 0.3% decline in USD/MXN yesterday, despite weaker Mexican Retail Sales. Total sales declined by 0.3% during March. Markets had been expecting a decline of 0.2% over the past month. The yearly total was also missed by some margin, with sales reaching 3.4%, against an expected increase of 4%. 

BRL

There has been a moderate respite for the beleaguered Real during yesterday’s session. USD/BRL declined by 0.3% on the day. The pair remains over 3% higher throughout this week and remains fairly flat on the month. 

CNY

USD/CNY has edged around 0.5% higher over the week, despite broadly stronger data from China. Growth and consumer spending have accelerated sharply since lockdown restrictions were relaxed at the start of the year. However, weaker Manufacturing muddied the waters somewhat.