USD

The dollar is struggling across the board, with market-implied probability reaching 60% for the Fed to remain on hold at the next FOMC meeting* (3rd May). Investors look to reverse bets after thinking the Fed would increase the pace of hikes from 25bps to 50bps. The dollar index is down a further 0.6% this week, which, if continued, will see the dollar declining for five straight weeks. With a light agenda of economic data until Friday’s Core PCE, few catalysts other than more jitters over the (non-US) banking sector could save the dollar’s blushes for now — a tough time for dollar bulls.

*Source: CME Group

EUR

EUR/USD has risen by a cool 0.8% since the beginning of the week and is now just 0.5% below last week’s high. Aside from a slight improvement against expectations in German GfK Consumer Confidence and a weaker dollar, ongoing rhetoric from key ECB officials has partially helped to fuel the positive move. The ECB’s chief economist is the latest to suggest that Euro area rates must continue to rise if the recent banking tension has little or ‘fairly limited’ impact. Lane also suggested that inflation is set to decline rapidly at the end of the year, which, if proved correct, could well impact the profile for future rate hikes.

GBP

Who would have guessed just a couple of months ago that the pound might be one of the stronger-performing currencies in a crisis? That continues to be the case, as UK banks appear to be shielded from the problems testing US regional and European banks. Recent hawkish commentary from the BoE’s Bailey has also played its part. As for GBP/USD, the pair has risen by 2% over the past four weeks. On the horizon, Friday’s latest growth data will be one to watch amongst crucial UK data releases.

JPY

Outgoing BoJ governor Kuroda suggested earlier today that "Japan is closer than before to substantially hit the 2% inflation target." That quote comes just 24 hours before the latest Tokyo inflation is due, so either Kuroda knows more than the rest of us, or he might want to go out with a bang. Current market expectations certainly side with Kuroda, with yearly headline inflation expected to drop from 3.4% to 2.7% through March. The recent safe-haven-led rallies for the Yen have also understandably consolidated of late, with USD/JPY rising by around 0.8% today and EUR/JPY up by a snappy 0.9%. 

CAD

The Loonie continues to mark steady gains against the greenback, aided by higher oil prices and the broadly weakening dollar. USD/CAD has declined by over 1% throughout this week and is trading at levels not seen since the beginning of March. Friday’s Canadian growth data may also confirm a decent improvement over the previous month, which may help fuel further rate hikes from the BoC. Further hikes would also likely feed into a stronger Loonie, at least at the margin.

MXN

Emerging market currencies have been capitalizing on the recent dollar wobbles, with USD/MXN slipping by another 1.25% this week after declining by over 2% last week. We are now nearing the cycle low (Peso high) just in time for the latest Banxico meeting, which looks to support the recently weakening dollar. The latest poll by Reuters sides with a 25bps hike by Banxico tomorrow, with all 20 analysts in the survey opting for the minor move.

BRL

The Real continues to follow the Peso higher (lower USD/BRL), with the pair falling by nearly 2% over the past two weeks and approaching lows not witnessed since early March.