Daily Market Pulse

USD

After surging higher leading into Tuesday's US session, the Dollar rally cooled slightly to close the day as President Biden and lawmakers failed to resolve the debt ceiling crisis. Despite the impasse, Biden and House Speaker McCarthy agreed to continue talks, with a scheduled meeting on Friday among the top congressional leaders. This morning's inflation data sent the Dollar tumbling as markets reacted to most CPI measures arriving in line with expectations. The exception was April's year-on-year read, rising 4.9% versus a 5% expectation. 

Finally, US mortgage numbers were released earlier and showed an impressive rebound to 6.3% in the first week of May – the most in nearly two months.  

  

EUR

German inflation data aligned with expectations across the board, which led to a temporary bump in EUR/USD before resuming its fall before the US CPI release. 

Since the US release, however, the pair has turned positive on the day as it looks to claw back yesterday's losses. 

Recent comments from various ECB members have given traders mixed signals, with the more hawkish voices suggesting the need for further hikes to reduce inflation. At the same time, doves such as Council Member Yannis Stournaras predict an end to rate hikes by year-end. Meanwhile, according to the most recent CFTC report, speculators have amassed the most prominent Euro-bullish position in over two years, reaching $23 billion and nearly tripling in six months. This indicates a potentially overcrowded trade, which could be a factor in the Euro's inability to break through its current multi-week plateau.    

GBP

Sterling remains strong as the clock approaches tomorrow's highly anticipated Bank of England rate decision. The GBP/USD is currently retesting its May 2022 high, but it was unable to maintain it earlier this week, even though the initial response to the US inflation numbers had a positive impact on it. Meanwhile, the Pound has managed to keep its multi-week rally against the Euro as EUR/GBP fell to a five-month low earlier this morning.

JPY

USD/JPY is firmly in the red today, following a three-day winning streak dating back to last Friday. While much of the pair's up-and-down moves over the last 4- 6 weeks have been driven by US and global economic headlines, the inability to maintain a clear direction can be partly attributed to mixed data from Japan – including this morning's leading economic index release. The index, which assesses factors such as job offers and consumer sentiment, decreased to 97.5 in March, compared to 98.2 in February. Concerns growing about a potential global recession are still showing up in the Japanese economy despite recent comments by BoJ Governor Ueda that their economy is showing signs of recovery.

CAD

USD/CAD is headed back toward three-week lows after US inflation data. Meanwhile, Canadian building permits posted another unexpected spike of 11.3% in March, as markets expected a drop of 2.9%. This comes after posting a surprise 8.9% monthly jump in February. Overall, the Loonie's short-term fate remains tied to the oil performance (up again today) and sentiment toward the Greenback, particularly in the absence of significant economic data out of Canada until next Tuesday's CPI release. 

MXN

After a bumpy start to the day, the Mexican Peso closed out Tuesday slightly up against the Dollar. The trend continues this morning, with US inflation numbers sending the Greenback tumbling as MXN traders also digest yesterday's CPI data out of Mexico. Given the signs of cooling domestic inflation, markets are pricing in Banxico's hold on interest rates ahead of their May 18 policy meeting. In the near term, the focus turns to Friday's industrial output data out of Mexico, with expectations for a month-on-month drop of 0.2% in March after showing a 0.7% rise in February.

BRL

The Real's bumpy ride continues. After the initial selloff resulting from the Brazilian Finance Ministry's nomination of Gabriel Galipolo to a central bank position, buyers returned to the picture to stem the losses. As a result, BRL is trading nearly 1% higher this morning as markets evaluate US inflation data and big beats on Brazilian industrial output – the latter showing monthly and yearly increases of 1.1% and 0.9%, respectively. Another aspect that Real traders will keep an eye on is capital flows, with a recent report showing Brazil equities seeing more capital outflows in April despite positive inflows for emerging market stocks – which could weigh on the Real's performance if the trend continues.     

CNY

CNY is on the front-foot today as this morning's broad selloff in the US dollar pushes Chinese economic concerns aside. Yuan traders will now look toward China inflation data on deck for this evening, as expectations are for April CPI to remain relatively muted. Despite this morning's move, CNY strength may be limited as the potential for a PBoC rate cut later this month continues to rise as recent data out of China points to a stalled economic recovery.