USD

The Dollar is on pace for its worst week since January after the Dollar Index dropped 0.8% yesterday – its most significant single-day loss since March. The decline comes despite Wednesday's hawkish hold from the Fed as markets anticipate the ECB and BoE have more room to hike over the coming months than their US counterpart – narrowing expected interest rate spreads and weighing on the Greenback.   

Despite the Fed's dot plot projecting at least two more rate hikes in 2023, markets are only pricing in one more 0.25% increase this year after yesterday's US initial jobless claims rose last week, sparking concern that the labor market is starting to feel the pressure, implying that the Fed will have to lay off the gas if it continues.

Later this morning, traders will get a first glance at US consumer sentiment for June, where the Michigan Consumer Sentiment Index is expected to rise to 60 from 59.2 in May.

EUR

The Euro looks to make it five straight winning sessions today, fresh off yesterday's 1.1% surge in the aftermath of the ECB's hawkish hike.  

The ECB delivered its widely expected 0.25% rate yesterday while announcing an end to its Asset Purchase Program starting next month, further sapping liquidity from European markets in an effort to quell inflation. Additionally, the Bank revised its 2023 Eurozone GDP forecast down to 0.9% while raising its inflation forecast to 5.4%, leading ECB President Christine Lagarde to warn markets that another 0.25% rate hike in July is "very likely."

This morning, Eurozone CPI came in at 6.1% for May, its lowest since February 2022 but still well above the ECB's 2% target. Meanwhile, wages and salaries in the Euro Area rose by 4.6% in Q1, marking the seventh consecutive quarter of growth, with the highest increases seen in utilities, services, and industry sectors. 

GBP

The Pound is up again this morning as it looks to close the week at its highest level since April 2022. GBP/USD is trading over 1.7% higher on the week heading into the US session, putting the pair on pace for its most considerable one-week rise since November 2022.

Markets are pricing in the BoE raising interest rates at least 0.25% at next week's meeting, with a slight chance of a bigger 0.5% increase as inflation continues to stay high in the UK. Despite elevated average earnings and price pressures, a recent BoE survey showed a decline in the public's inflation expectations for the coming year, although they remain well above the average. In addition, the survey indicates net satisfaction with the central bank's inflation control reached a record low.                       

JPY

The Yen is under pressure again today, down around 0.5% against the Dollar this morning and pacing for its lowest weekly close since November 2022. The latest drop comes after the BOJ's decision to keep ultra-low interest rates unchanged. At the same time, BoJ Governor Kazuo Ueda expressed a commitment to maintaining these policies, despite the rise in consumer prices and concerns about a potential recession.

Since the start of 2023, the Yen has dropped over 7% against the Dollar, 10% against the Euro, and nearly 14% against the Pound as the BoJ continues to find itself on an island compared to its major counterparts.

This monetary policy divergence has made the Yen an attractive funding currency for carry traders, leading to compounding pressure on the currency, much to the dismay of Japanese government officials who are increasingly concerned about the Yen's rapid devaluation.                               

CAD

After beginning the day on the back foot, the Loonie reversed course yesterday and finished with a 0.75% gain against the Greenback – putting it on pace for its highest weekly close since September 2022.

The reversal was driven by yesterday's weaker-than-expected US jobless claims leading to doubts on the Fed's ability to deliver on its projections of two more hikes in 2023, as well as a spike in oil prices after recent data from China indicated demand is on the rise.  

Earlier today, wholesale sales in Canada unexpectedly declined by 1.4% in April, missing forecasts, as lower sales in miscellaneous goods and food, beverage, and tobacco products offset higher sales in the motor vehicle sector, with Quebec and Ontario experiencing the most significant drops.  

MXN

The Mexican Peso is modestly lower this morning but up from the lows, continuing to trade at its highest levels in over seven years. Heading into the week's final session, MXN is up nearly 1% against the Dollar on the week and well on its way to its fourth straight weekly gain.

The next move for the Peso is likely to be determined by how much faith traders have in the Fed's ability to tighten monetary policy in 2023 while traders await new data out of Mexico next week, beginning with April retail sales numbers. 

Markets expect Mexican retail sales figures to show a 0.3% monthly decline for April after coming in flat for March. However, the year-on-year number is projected to rise by 2.9% after posting a 2.5% gain in the previous period.     

BRL

The Brazilian Real is in the red this morning, although still well into positive territory on the week as it fights to remain near the one-year high set earlier this week.   

Yesterday, Brazilian President Lula da Silva expressed optimism about Brazil's economy, stating that it will grow at least 2% this year following a better-than-expected performance in Q1. Lula also emphasized that Brazil is regaining credibility on the world stage. Despite this positive outlook, Lula once again criticized his central Bank's interest rate policy and questioned the need for rates to be at a six-year high when inflation is around 4%.

The remarks come less than a week away from another interest rate decision from Brazil's central Bank, where it remains likely the Bank will hold rates firm for June as markets assign a higher likelihood of cuts beginning in August.  

CNY

The Yuan is pulling back slightly this morning after posting its most significant single-day jump since March yesterday. Despite being well off the week's lows, the Yuan still has more work to do if it hopes to avoid its sixth-consecutive weekly loss against the Dollar.

 

The moves come after this week's disappointing industrial output and retail sales data boosted expectations that the CPC will implement fiscal stimulus measures to prop up the struggling economy. Reports indicate these measures may be focused on supporting the housing market and boosting investment in infrastructure.

 

Meanwhile, CNY traders remain on the lookout for additional monetary stimulus from the PBoC next week in the form of a cut to the Bank's benchmark rate.