USD

The Dollar is inching higher for the fourth straight day ahead of Fed Chair Jerome Powell's testimony before Congress later this morning.

Powell will be tasked with explaining why the Fed paused its rate hikes in June despite projecting further tightening as traders seek clarification on whether the Fed is genuinely committed to two additional rate hikes this year or is taking a wait-and-see approach. Markets currently are pricing in a 75% chance of a July hike but are less confident of a second hike in 2023.

Meanwhile, mortgage applications in the US rose slightly by 0.5% last week. While applications for home purchases increased, refinancing applications declined, indicating the housing market is still facing challenges as the Fed maintains its higher-for-longer stance on interest rates.

EUR

The Euro is trading sideways this morning, with the European calendar relatively quiet aside from revisions to Ifo's German economic forecasts released earlier.

According to the Ifo Institute, the German economy is expected to contract more than anticipated due to persistent inflation affecting private consumption. They forecast a 0.4% decline in GDP this year, down from their March estimate of a 0.1% drop. The institute also revised down GDP growth forecasts for 2024 to 1.5% while expecting inflation to gradually ease from 5.8% this year to 2.1% in 2024. In addition, private consumption is projected to decline by 1.7% this year but is anticipated to recover with a 2.2% increase in 2024. Finally, unemployment rates are expected to rise slightly in 2023 and 2024.

GBP

The Pound is taking another step back this morning after another hot inflation print stoked recession fears as markets anticipate more aggressive rate hikes from the BoE in the future.

UK annual inflation remained unchanged at 8.7% in May against an expected 8.4% print. The news has increased the likelihood of the BoE raising rates by 0.50% at its Thursday meeting, although market pricing indicates a 0.25% remains the most likely outcome. As it stands this morning, markets are pricing a 60% chance of a 0.25% hike and a 40% chance of a 0.50% hike.

While the expectations of higher interest rates are typically bullish for a currency, concerns about the impact of higher rates on the UK economy are weighing on the Pound.                     

JPY

After finishing yesterday in the green, the Japanese Yen has given up most of those gains today after more comments from the BoJ reaffirming their commitment to ultra-loose monetary policy.

BoJ board member Seiji Adachi stated that the chances of adjusting the bank's yield curve control policy at the upcoming July rate review are small unless market conditions change significantly while ruling out immediate changes to Japan's ultra-low interest rates - highlighting the importance of maintaining loose monetary policy due to global economic uncertainties. Adachi also emphasized the need to evaluate consumer price data from July onward to assess inflation levels.                             

CAD

The Loonie is up around 0.1% this morning on the heels of new retail sales and housing data out of Canada.

Preliminary estimates suggest that retail sales in Canada likely increased by 0.5% in May, following a substantial rise of 1.1% in April, well above the expected 0.2% rise projected for April. This growth was primarily driven by strong performance in general merchandise retailers and food and beverage retailers. In addition, retail sales showed a 2.9% jump on a year-on-year basis.

Meanwhile, new home prices in Canada slightly rose by 0.1% in May compared to April, exceeding expectations. However, on a yearly basis, prices fell by 0.6% due to higher borrowing costs, marking the second consecutive decline in the index. 

MXN

The Mexican Peso is back in the red today after dropping 0.6% against the Greenback, as broad Dollar strength and declines in oil prices outweighed yesterday's strong retail sales releases out of Mexico.

Earlier today, Mexico's private spending data for Q4 2022 was released, indicating a surprising quarterly rise of 2.2% against market expectations of a 0.7% decline. From an annual perspective, spending rose 4.8%, more than the expected 4.4% growth.

Additionally, President Obrador announced the appointment of his current deputy labor minister, Marath Bolanos, as the new head of the ministry, as part of a cabinet reshuffle influenced by the ruling party's upcoming presidential contest.   

BRL

The Brazilian Real is down over 0.4% this morning after pulling back slightly yesterday alongside most of its LATAM peers. BRL traders will look toward today's interest rate decision from the Central Bank of Brazil, where it is expected they will hold rates at 13.75%, while also keeping an eye on Fed Chair Powell's testimony for clues on US monetary policy direction.

Meanwhile, Brazil's National Monetary Council is anticipated to adjust the time frame of the central bank's inflation target, shifting it from an annual goal to a moving horizon. This change would enable the central bank to work towards achieving the target rate over a specific period of months rather than a fixed year-end deadline. Despite President Lula's call to raise the 2024 target to 3%, the target rate is expected to remain unchanged.

CNY

The Chinese Yuan continues to falter today, dropping to a seven-month low as the recent rate cuts by the PBoC keep the pressure on the struggling currency as the Chinese market closes for its two-day Dragon boat festival.

Despite the rate cuts, market worries persist that China's economy will need far more support in the form of fiscal stimulus to turn the tide. Despite CPC cabinet members pledging more support at their meeting last Friday, action has yet to be taken.

The economic calendar will remain quiet in China until next Thursday when PMI data is scheduled for release.