USD

After a broad, post-CPI selloff, the Dollar is back on the front foot this morning as buyers re-enter the fray.  The rebound comes as traders shake off yesterday’s inflation release and refocus attention on two major US economic black clouds – the banking sector and the government debt ceiling standoff.  Little progress has been made on the latter as both sides continue to dig their heels in ahead of Friday’s meeting between President Biden and the top-four congressional leaders.  On the banking front, the shares of the embattled regional bank PacWest fell by more than 20% in premarket trading after the bank’s recent securities filing showed a 9.5% decline in deposits last week and 16.9% for all Q1.  Shares are now down over 70% for the year as the bank continues to explore “strategic options.”  On the data front, US jobless claims came in higher than expected, while PPI was less than expected.

  

EUR

A quiet EU calendar has kept the Euro at the mercy of the Dollar this morning as EUR/USD steps back into the red heading into the US session. The pair continues to bounce between three-week lows and one-year highs. Traders continue to weigh the Euro-bullish potential for an ECB and Fed policy divergence against a Dollar-bullish backdrop of global macro storm clouds and general risk-aversion. With another light Eurozone calendar set for Friday, traders will keep an eye on tomorrow’s US consumer sentiment data before shifting their focus toward Monday’s release of the European Commission’s economic growth forecast.     

GBP

The Bank of England was front and center this morning after delivering their much-expected 0.25% rate hike, taking UK rates to their highest levels since 2008. 

In their policy statement, the Bank indicated they no longer expect a recession in the UK. However, they do expect inflation to fall slower than initially forecasted – primarily driven by significant spikes in food prices. Finally, Bank’s forward guidance remains the same – more hikes are on the table if inflation persists. The initial reaction to the decision saw the Pound retest the May 2022 high yet again. 

However, the move was again foiled as the risk-off flows into the Dollar kept the rally in check.  

JPY

The Yen is clinging to yesterday's gains this morning as risk-off sentiment props up JPY. Japan's April service sector sentiment exceeded market expectations, reaching its highest level since December 2021. The rise was driven by positive trends in household consumption and corporate activity, contributing to an overall optimistic outlook despite concerns about inflation. Looking ahead to this evening, the Bank of Japan will release its April M2 money supply report and is expected to show a slight acceleration from March – which would indicate that inflation is also on the rise.

CAD

This morning, the Loonie is losing ground due to the market's risk-averse sentiment, which is causing a rise in the US dollar's value and reducing the momentum of the earlier oil rally. After rallying 1.24% last week, the quiet Canadian economic calendar has made it difficult for the Loonie to break through the three-week high. Although it remains in striking distance, it would take a significant shift in risk-off sentiment to retest the level this week. Looking to next week, Canadian CPI and retail sales are both on tap, which could help jolt USD/CAD. 

MXN

The Peso rally continued yesterday after surging 1.26% and reaching a six-year high versus the Greenback. Yesterday's surge in the market was mainly influenced by the US inflation report, which investors perceived as confirmation that the Federal Reserve might hold off on raising interest rates in the near future. However, MXN has pulled back slightly this morning amidst broad-Dollar buying. USD/MXN traders now have their eyes set on tomorrow's Mexican industrial output data and US consumer sentiment release as they begin to position themselves ahead of next week's Banxico decision. 

BRL

The Brazilian Real has completely flipped the script this week after finishing the day strong yesterday and posting gains of over 0.8% against the Dollar. BRL is now in the green for the week as it looks to make it three consecutive winning weeks against the greenback. Yesterday’s industrial output release out of Brazil showed a positive Q1, although doubts remain about the sustainability of this output given the high-interest rate environment in Brazil. Up next on the Brazilian economic calendar is April IPCA inflation numbers set for release tomorrow morning. Current forecasts show an expected decline to 0.54% month-on-month compared to the 0.71% posted in March.       

CNY

The Yuan began the day in the red against the dollar following disappointing April inflation data and news that Chinese banks were instructed to lower deposit rate ceilings. The country's consumer prices experienced the slowest growth in over two years, and factory gate deflation worsened, indicating the potential need for further stimulus to support the post-COVID economic recovery. Chinese banks provided 718.8 billion Yuan in new loans in April, significantly lower than market expectations and the previous month's figure. In response to the economic challenges, authorities have announced additional credit support for private-sector projects.