Daily Market Pulse

USD

The Dollar is back in the red this morning ahead of this afternoon's Fed decision and subsequent press conference. The move comes after yesterday's soft US CPI print sent the chances of a Fed hike down below 5%, paving the way for the Bank's first hold in its current rate hike cycle since it began in March 2022.

While the Fed may move to the sidelines this month, it may not mean the tightening cycle is over. The post-meeting statement may be cautiously worded to indicate more hikes are on the table if the data supports it. Meanwhile, the dot plot, showing the Fed's rate expectations for the next two years, and the Summary of Economic Projections will provide insights into the Fed's outlook going forward and influence the Dollar's short-term direction.

Earlier this morning, markets got another look at US inflation – this time on the producer side. In May, PPI surprisingly declined by 0.3% compared to April, mainly driven by lower prices of goods, particularly gasoline and food, while prices for services slightly increased. On a year-on-year basis, PPI rose by 1.1%, marking the lowest rate since December 2020.

EUR

The Euro is up for the third straight day as traders jockey for position ahead of the Fed and ECB decisions over the next 24 hours. With markets already pricing in a Fed hold and ECB hike, the near-term path of EUR/USD is more likely to depend on the messaging delivered from the respective Banks rather than the actual interest rate decision (barring a shocking move by either one).

On the data front, industrial production in the Eurozone rebounded by 1.0% in April, surpassing expectations. Capital goods and energy production showed strong growth, while non-durable goods, durable consumer goods, and intermediate goods experienced declines.

Meanwhile, Germany's wholesale prices experienced a significant decline of 2.6% year-on-year in May, driven by various factors such as mineral oil products and scrap materials. On a monthly basis, wholesale prices also contracted by 1.1% in May. 

GBP

The Pound continues to surge today as it looks to build on yesterday's 0.85% gain and retest the 12-month high after this morning's UK GDP and trade data.  

The UK economy showed modest growth in April, posting a 0.2% month-on-month rise and avoiding a recession. The services sector led with 0.3% growth, but the manufacturing and construction sectors both contracted.

In addition, the trade deficit in the UK for April contracted to GBP 1.52 billion, reaching its lowest level since October 2022. This was driven by a 1.3% increase in exports and a 0.6% decline in imports, which sank to a 16-month low. Notably, exports to non-EU countries experienced significant growth, particularly in machinery and transport equipment, while imports from the EU decreased due to reduced purchases of chemicals and medicinal products.                         

JPY

The Yen begins the morning in the green after failing to hold onto its early gains yesterday, ultimately reversing course and closing the day down around 0.4%. 

As JPY traders await word from the BoJ later this week, Japanese trade data for May is on deck later this evening as Asian markets get set to reopen. Markets expect imports and exports to each show a year-on-year drop of 10.3% and 0.8%, respectively.  

Japanese politics are also on the radar of Yen traders this week, as reports indicate Prime Minister Fumio Kishida is considering dissolving the lower house of parliament if the opposition submits a no-confidence vote on Friday, potentially leading to a snap election as Kishida aims to solidify his position within the ruling Liberal Democratic Party ahead of next year's crucial leadership race.                                

CAD

The Loonie is slightly higher today after rallying nearly 0.4% against the Greenback yesterday. The broad selloff in the Dollar and rebound in oil prices has helped USD/CAD dip to four-month lows on back-to-back days as the pair looks to the Fed this afternoon for direction.  

After a quiet start to the week, the Canadian economic calendar finally picks up again tomorrow, with May Housing Starts and April Manufacturing Sales set for release in the morning. Forecasts point to a year-on-year dip in housing starts to 235K after positing 261.6K in April, while manufacturing sales are expected to have fallen 0.2% in April after posting 0.7% growth in March.       

MXN

The Mexican Peso continued its impressive run yesterday, posting a 0.3% gain against the Dollar en route to its eighth day in the green out of the past nine. With a blank economic calendar this week, today's commentary from the Fed and subsequent reaction in the Dollar is set to drive USD/MXN in the near term.

Meanwhile, domestic politics continued to dominate the deadlines in Mexico as Mexico City Mayor Claudia Sheinbaum announced her resignation to pursue the candidacy for the 2024 presidential election, aiming to become the country's first female leader. Sheinbaum is one of the leading candidates for the ruling MORENA party's nomination, which is favored to win the 2024 presidential election.      

BRL

The Brazilian Real is moving higher again today, breaking through to a fresh one-year high as traders shake off this morning's soft retail sales print.

April Retail sales in Brazil showed a modest increase of 0.1% compared to March, falling short of market expectations of a 0.3% rise. From a year-on-year perspective, retail sales rose by 0.5%, the slowest growth in four months and below market forecasts of 0.95%.

On the bright side, the latest Focus survey pointed to increased GDP estimates for Brazil this year to 1.84%, while the Ministry of Finance also revised its growth forecast higher for 2023. Positive growth signals and signs of stabilizing inflation have raised expectations for Brazil's Central Bank to cut rates as soon as August.    

CNY

The Yuan is slightly higher this morning, although still well in the red for the week as traders await word from the Fed later today and news of potential stimulus measures from China to boost their slowing economy.

While markets anticipate more rate cuts and potential monetary stimulus from the PBoC after yesterday's surprise cut to the Bank's reverse repo rate, there is also potential for fiscal stimulus from the CCP targeting struggling sectors such as real estate.

 

Later this evening, China's retail sales data for May is set for release and is expected to show 13.6% growth year-on-year, a drop off from the 18.4% seen in the previous print.