USD

The US Dollar begins the day essentially unchanged, fresh off its worst weekly performance since November 2021, with the Dollar Index seeing losses of nearly 2.30% last week. The selloff was triggered by expectations that the Fed will end its tightening cycle after this month thanks to the recent batch of softer inflation data.

Earlier this morning, the latest NY Empire State Manufacturing Index read came in at 1.1, beating expectations. The report indicates a slight uptick in new orders while prices paid have cooled. However, the index for future business conditions slightly decreased, indicating a lack of optimism from participants.

Looking ahead, traders will be eyeing the equity market as several key earnings releases are on deck this week, including Bank of America, Goldman Sachs, Netflix, and Tesla.

EUR

The Euro is trading sideways today after posting a 2.3% gain against the Greenback last week and trading through a 15-month high. With few high-impact economic releases on deck for Europe and the US this week, much of EUR/USD's moves for this week are expected to be defined by broader market sentiment and reactions to major US corporate earnings releases.

The lone data point on the European calendar today for traders to digest was Italian inflation, which fell to 6.4%, a 14-month low, primarily due to decreased energy costs following the decline from peak levels in June 2022 caused by the Russian invasion of Ukraine. Prices cooled significantly for non-regulated energy, processed food, and transportation services, while unprocessed food prices continued to rise.

GBP

The Pound took full advantage of the weaker Dollar last week, closing around 2% higher despite a pullback on Friday. Today, GBP is taking a small step back on a quiet Monday morning as traders look ahead to Wednesday's crucial UK inflation reading for clues about how aggressive the BoE will become in its August 3 interest rate decision.

Following a somewhat surprising 0.5% interest rate hike in June, markets are pricing in a 70% chance of another 0.5% hike at their August 3 meeting while assigning just a 30% chance of a 0.5% hike.

JPY

The Yen is down around 0.1% this morning as it looks to rediscover the magic of the last two weeks, which saw JPY gain nearly 4% against the Dollar. With JPY traders off and Japanese financial markets closed for the holiday, USD/JPY will likely be at the whims of US Dollar moves for the day.

Crossing the wires during the Asia session, Japanese Finance Minister Suzuki and BOJ Governor Ueda took to the podium after the G7 finance ministers meeting, where Suzuki stated that there were no discussions at the meeting concerning exchange rates. Meanwhile, Governor Ueda reiterated the BOJ's defiant stance on maintaining ultra-low interest rates, citing the prevailing climate of global economic uncertainty.

CAD

After a solid start to the week, gaining as much as 1.3% versus the Greenback, the Loonie reversed course on Friday and gave up nearly half of those earlier gains. Despite the pullback, the CAD did still close out the week in the green, although the outlook moving forward is somewhat shaky as traders see an end in sight to the BoC's tightening cycle.

Despite delivering another 0.25% hike last Wednesday, the decision came with a more dovish implication as the Bank removed reference to rates not being restrictive enough in its monetary policy statement. Many market participants took this to mean the BoC will follow a similar path to their US counterparts, preventing the Loonie from capitalizing on the Dollar selloff in the same manner that some of its G10 peers have.

MXN

The Mexican Peso is on the back foot this morning after finishing last week with a 2.4% gain against the Dollar – its best week since March. With the Peso at its highest level since December 2015, traders are wondering how much further the rally can go. Given how one-sided the USD/MXN trade has been for 2023, the potential for a pullback, or at least a pause, cannot be overlooked.

On the data front, there is no action on Mexico's economic calendar until Thursday's retail sales release, leaving the Peso at the whims of US economic and earnings data for the coming days.

BRL

The Brazilian Real finished around 1.7% higher last week versus the Greenback, offsetting most of its losses from the previous week as it reapproaches the May 2022 high it tested last month. Today, the Real is down around 0.6%, however, in what has been an otherwise subdued trading session thus far.

Brazil's economic calendar is bare this week, leaving today's read of Brazil's Leading Economic Index the lone data point for BRL traders to mull. The index, widely used as a leading indicator of GDP, fell 2% in May, its most significant drop since the early days of the pandemic. The decline comes as a surprise to market participants, who expected a 0% read instead.

CNY

After posting its best week since February, the Yuan is back in the red today after Q2 GDP and June retail sales data both missed the mark.

China's economy grew 6.3% year-on-year in Q2, short of the 7.3% expected, although still an improvement from Q1's 4.5%. Meanwhile, China's annual retail sales growth slowed to 3.1% versus an expected 3.2%, with sectors like clothing, cosmetics, and furniture witnessing the steepest slowdowns.

However, China's industrial production did provide some positive news, growing by 4.4% year-on-year and surpassing the 2.7% growth expected. The result was driven by increased manufacturing activity and a rebound in mining output. 

Finally, China's urban unemployment rate in June came in at 5.2%, with a notable increase to a record high of 21.3% for those aged 16-24.