USD

The Dollar Index continues to slide this morning, down around 0.1% today and sinking to a two-month low as some Fed officials hinted on Monday that their interest rate tightening cycle could be close to ending. While another 0.25% hike later this month is still being priced in, bets on further hikes this year are declining as markets seek clarity from the Fed.

Earlier this morning, the June US NFIB Small Business Optimism Index reached its highest level in seven months at 91, exceeding market expectations. However, small business owners remain cautious about future business conditions and sales prospects as they continue to grapple with inflation and labor shortages.

EUR

The Euro came into the day riding a three-day winning streak and trading at a two-month high but has since pulled back as traders digest yesterday's Fed commentary and several key European data releases this morning.

Germany experienced an annual inflation rate of 6.4% in June, driven by increased costs in energy and services, while food inflation eased slightly. Additionally, on a monthly basis, consumer prices saw a 0.3% increase. The report indicates progress has yet to be made on inflation since the previous read, meaning there is still more work ahead for the ECB.

In addition, Germany's ZEW Indicator of Economic Sentiment dropped to its lowest level since December, reflecting investor concerns about the anticipated economic downturn due to factors such as rising interest rates and weaker export markets, especially in China. Meanwhile, the Eurozone's ZEW Indicator of Economic Sentiment suffered a similar fate, coming in at its lowest since December.

GBP

The Pound continues its ascent this morning, up around 0.2% against the Greenback heading into the US session. The latest leg in the Pound's rise comes amid a sell-off in the Dollar and UK jobs data that fueled bets on another 0.5% hike from the BoE next month.

During the three months ending in May, average weekly earnings in the UK, including bonuses, rose by 6.9% compared to last year, driven by notable growth in the finance and business services sector, while regular pay, excluding bonuses, increased by 7.3%. However, after adjusting for inflation, both total and regular pay experienced declines.

Meanwhile, the UK's unemployment rate rose to 4.0%, the highest since late 2021, with 77,000 more people becoming unemployed, while employment levels increased by 102,000, mainly driven by part-time workers.

JPY

The Yen's impressive rally continues today as traders spurn the US Dollar on the heels of yesterday's Fed rhetoric. Heading into the US session, JPY is up around 0.7% and trading at its highest level in over three weeks.

On the data front, machine tool orders in Japan declined by 21.7% year-on-year, with domestic demand falling by 29.9% and foreign demand decreasing by 16.7%.

Looking ahead, Japan's latest producer prices data is set for release later this evening as Asian markets check back in. Market expectations are for annualized PPI to slow to 4.3% in June from the 5.1% seen in May. On a monthly basis, June's PPI read is expected to rise 0.1% after a 0.7% decline in May.

CAD

While many of its major counterparts have rallied against the Dollar to start the week, the Loonie remains in limbo. USD/CAD closed yesterday just 0.03% higher and begins today essentially unchanged as the BoC's much-anticipated July monetary policy decision tomorrow.

Markets are bracing for another 0.25% hike from the BoC tomorrow, although the Bank has been known to surprise markets. If the BoC does elect to raise rates again, it will take the benchmark rate to 5% - its highest since 2001. The real intrigue for CAD traders will be commentary from BoC Governor Tiff Macklem on where interest rates go from here. Will the Bank remain hawkish, or take cues from their US counterparts and hint that the tightening cycle is nearing its end?

MXN

After gaining around 0.4% against the Dollar yesterday, the Mexican Peso is pulling back slightly this morning as Latin American currencies as a whole take a step back. With no data on deck today in Mexico, MXN traders will shift their focus to tomorrow's industrial output data out of Mexico and the eagerly awaited US CPI release.

Mexico's industrial output is projected to come in flat for May after rising 0.4% in April. Meanwhile, from an annual perspective, markets expect industrial output to show a 1.9% increase versus a previous read of 0.7% growth.

BRL

The Brazilian real is back in the red this morning after the latest release of Brazilian inflation data earlier today.

The June read of Brazil's annual inflation rate fell to 3.16%, reaching the lowest level since September 2020 and remaining below the central bank's upper tolerance limit for the fourth straight month. Lower transportation, food, and beverage prices primarily drove the latest decline. Additionally, from a month-on-month perspective, prices in Brazil saw a slight decline of 0.08% in June, primarily due to decreases in prices for food, beverages, transportation, and household items.

CNY

The yuan is up around 0.2% this morning as it looks to keep itself out of the red for the fourth straight day.

In addition to benefiting from the perceived dovishness of recent Fed commentary, the yuan is also gaining on the news that the PBoC and National Financial Regulatory Administration have extended their support package to increase liquidity in China's struggling real estate market.

On the data front, Chinese banks provided substantial new yuan loans in June, beating market expectations as the PBoC's recent rate cuts boosted credit demand. Meanwhile, total social financing also rose above market expectations, indicating increased credit and liquidity in the system.