Daily Market Pulse

The USD rose 0.65% yesterday after domestic inflation data for July came in higher than expected. Core inflation - which excludes food and energy costs - increased 0.4% in January, more than expected and the fastest pace in 8 months. “Super-core” measures of services prices climbed 0.8% month-over-month, the most since April 2022.

Implied odds of a US Fed rate cut at the May decision declined from 69% to just 37% after the inflation data. These latest inflation readings lend credibility to the ‘wait-and-see’ approach emphasized of late by Fed Chair Powell and Fed speakers alike. 10-year US treasury notes rose 13 basis points to levels last seen on December 1st.

EUR/USD fell nearly 0.6% yesterday after the US CPI data yesterday. ECB Chief Economist Philip Lane suggested more time is needed to be sure that price growth is headed back to the 2% target, a common communication from ECB officials of late. Eurozone aggregate Q4 GDP stagnated, narrowly avoiding technical recession after a Q3 contraction. ECB head Lagarde speaks tomorrow.

GBP/USD fell 0.3% yesterday, buoyed relative to G10 peers after its own domestic employment data showed strong metrics including above-expectation wage growth. CPI data today, however, came in below expectation and the GBP would fall nearly 0.5% over the data release. Implied pricing for the first BOE rate cut remains at the August decision. BOE Governor Bailey speaks later today to the House of Lords Economic Affairs Committee.

USD/CAD rose 0.85% yesterday to 2-month highs. The Canadian Dollar, as well as other commodity currencies, are seeing support today with crude oil heading for its seventh straight daily gain. According to analyst reports, the BOC is likely to wrap up its quantitative tightening program as early as April, sooner than policymakers had previously indicated.

USD/MXN rose 0.75% yesterday but the pair has given back nearly half of those gains today, in-line with other emerging market peers. The Mexican Government granted state-owned Petroleos Mexicanos billions of dollars in tax relief just days after the company received a double-credit downgrade at Moody’s.