Daily Market Pulse

USD

The US dollar is back in the green today after the GDP and jobless claims data release earlier this morning.

The US economy grew by a stronger-than-expected 2% in Q1, driven by increased exports and consumer spending, despite downward revisions to non-residential fixed investment and government spending. The surprising improvement in net trade suggests a higher likelihood of the Federal Reserve raising interest rates next month.

In addition, US weekly jobless claims dropped to 239,000, beating expectations and indicating continued strength in the labor market despite concerns of a slowdown. The number of continuing claims also decreased, suggesting workers are re-entering the workforce after job losses.

On the Fed front, Fed Chair Powell stated that with US inflation still well above the 2% target and the tight labor market, most Fed policymakers anticipate raising interest rates at least twice more by the end of the year. He also noted that despite previous rate hikes, the economy, particularly business investment and the housing sector, has yet to experience their impact fully.

EUR

As traders digest the vast European and US data released today, the euro is inching lower this morning.

Economic sentiment in the euro area worsened for the second consecutive month in June, reaching its lowest level since November 2022. This decline was due to higher interest rates and persistent inflation straining manufacturers, constructors, service providers, and retailers. However, consumer confidence slightly improved, while the industry confidence indicator deteriorated.

Meanwhile, Germany experienced a significant increase in consumer price inflation in June, surpassing expectations and reaching its highest level in 14 months. The core inflation rate also saw a rise to 5.8%, fueled by higher prices for energy and services, while inflation for goods slightly eased due to slower growth in food costs.

GBP

After tumbling nearly 0.9% yesterday against the US dollar, its most significant single-day decline in seven weeks, the British pound is down again today as traders evaluate yesterday's hawkish comments from Bank of England Governor Bailey.

Bailey's suggestion that more rate hikes were on the table increased bets of another 0.50% hike from the BoE in August, with markets currently pricing in a 65% chance of such action and a 25% chance of a 0.25% hike.

Meanwhile, the financial troubles facing Thames Water, the UK's largest water supplier, have raised concerns among investors about the potential for more UK companies to waver under the weight of higher interest rates.

JPY

The Japanese yen is in the red again this morning after falling to a fresh seven-month low against the US dollar overnight.

Yesterday's policy panel at the ECB Forum on Central Banking included commentary from BOJ Governor Kazo Ueda and Fed Chair Jerome Powell and further cemented the stark contrast in policy stance between the two central banks. Powell indicated the possibility of two interest rate hikes this year, including a potential increase in July, while Ueda stressed the need for more progress in achieving inflation and wage growth before considering withdrawing stimulus.

On the data front, retail sales in Japan rose by 5.7% year-on-year in May, marking the 15th consecutive month of growth as consumption strengthened after the easing of pandemic measures.

CAD

The Loonie is down again today after suffering losses in each of the past two days and sinking to a two-week low.

This week's pullback comes as investors question the Bank of Canada's (BoC) ability to raise interest rates next month. Markets are currently pricing in a 55% chance of a rate hike in July, down from 64% due to recent data showing slower inflation. Fed Chair Powell's comments about the possibility of another US rate hike in July weighed on the Loonie.

April's gross domestic product (GDP) release is next on the Canadian economic calendar, set for release tomorrow morning and expected to show the economy grew 0.2% month-over-month after remaining stagnant in March.

MXN

The Mexican peso is slightly lower this morning after a full slate of US data sent the US dollar higher across the board. Despite many Latin American currencies struggling against the US dollar this week, the peso has held up well and remains on pace to close the week in the black.

Meanwhile, former Mexico City Mayor Claudia Sheinbaum is leading the race to be the candidate for Mexico's ruling party in the 2024 presidential election, according to a survey by polling firm Buendía & Márquez. Sheinbaum garnered 34% support, followed by former Foreign Minister Marcelo Ebrard at 22%. Another poll by GEA-ISA showed a virtual tie between Sheinbaum and Ebrard, with Sheinbaum at 39% support and Ebrard at 38%.

BRL

The Brazilian real has struggled over the past few days as traders weigh the possibility of Brazil's central bank opting for rate cuts in the near future. This morning, BRL is up around 0.1% against the US dollar, although still deep in the red for the week.

Earlier today, producer prices in Brazil showed a sharp drop in May, with a 3.07% monthly decline and a 9.20% year-on-year plunge, the most significant on record. The decrease was mainly attributed to lower prices of intermediate goods, leading to four consecutive months of deflation for producers.

The steep decline in producer prices will only add fuel to bets on an August interest rate cut in Brazil after the Brazilian central bank's recent meeting minutes struck a relatively dovish tone.

CNY

The yuan is down over 0.25% today as traders weigh incoming US data against another stronger-than-expected CNY fix from the PBOC.

The PBOC's recent interest rate cut and stronger-than-expected midpoint fixings for the yuan indicate efforts to prop up the yuan after it fell to its lowest level in nearly eight months in the offshore market. There is growing speculation that the PBOC may ease monetary policy further. At the same time, other major economies remain hawkish, making it difficult for the PBOC to backstop the yuan in the long run.

Looking ahead, China's June PMI data is set for release this evening, with markets anticipating a slight improvement in the manufacturing index from May – although expecting it to remain in contraction territory. On the other hand, Services PMI is expected to fall to 50.8 in June after coming in at 54.5 in May.