Daily Market Pulse

USD

The US Dollar opened modestly lower on Monday, near the multi-week lows seen last week. Traders are awaiting the release of key economic data from the Fed, ECB, and BoJ later this week, which could impact the direction of the US Dollar. The market expects the Fed to keep rates unchanged, although last week's unexpected rate hikes from the BoC and RBA have planted a seed of doubt in markets.

The May US Consumer Price Index (CPI) will be released tomorrow morning, ahead of the Federal Reserve's (Fed) meeting on Wednesday. The CPI data could play a significant role in the Fed's decision on interest rates, not just for this week but also for the July meeting, where the likelihood of another rate hike is slightly higher. Expectations are for the monthly CPI ex Food & Energy to come in at 0.4%, matching April's print, while the year-on-year figure is expected to cool slightly to 5.3% after a 5.5% print in April.

EUR

The Euro is up this morning after closing last week up nearly 0.4%, its first winning week since late April, as traders brace for this week’s Fed and ECB decisions. Unlike their US counterparts, the ECB’s view on interest rates is much less of a mystery, as the Bank continues to telegraph more rate hikes through the hawkish rhetoric from President Christine Lagarde and other members of the ECB governing council. Markets currently are pricing in a 0.25% hike this Thursday and another in July.

Like the Fed, the ECB will get one last look at inflation before their decision, with German and Spanish inflation numbers on deck for tomorrow, while French inflation is set for release Thursday – hours before the ECB announces its rate decision. Germany, the block’s biggest economy, will be the most anticipated release of the bunch, with markets expecting May CPI to decline 0.2% on a monthly basis while showing a 6.3% rise year-on-year.

GBP

The Pound is slightly lower this morning, although still within striking distance of the 12-month highs seen after last week’s 1% rally against the Greenback.

So far, the Pound has shrugged off recent UK political headlines that saw the resignations of former Prime Minister Boris Johnson and two other lawmakers as the likelihood of a UK general election in 2023 rather than 2024. The resignation is seen as another unwanted headache for current Prime Minister Rishi Sunak as he looks to quell party infighting ahead of the next election.

On the data front, GBP traders will look to tomorrow’s UK jobs data, where the three-month unemployment rate is expected to rise to 4% in April, while average earnings are expected to show an uptick.

JPY

Despite posting its third-consecutive week of gains, the Yen remains near its six-month lows as markets look toward Thursday’s BoJ meeting, where they are expected to maintain their ultra-loose monetary policy. BOJ officials, including Governor Kazuo Ueda, have emphasized their commitment to continuing stimulus until the 2% inflation target is reached.

Meanwhile, Japan’s producer prices increased by 5.1% year-on-year in May, representing a fifth consecutive month of slowing inflation and reaching a nearly two-year low. Additionally, on a monthly basis, producer prices declined by 0.7%, marking the first negative read since February.

Looking ahead, JPY traders will get a fresh look at Japan’s trade data on Wednesday before the BoJ takes over the spotlight later this week.

CAD

The Loonie starts the week mostly unchanged after posting two back-to-back weeks of solid gains against the Dollar.  

With the Canadian economic calendar very light this week, USD/CAD moves will likely be driven primarily by the Greenback ahead of a busy US calendar. After the BoC stole the show last week, the focus now shifts to the Fed to see if they will stay the course or pull off a surprise rate hike like their Canadian counterparts.

Oil prices will also have their say in the Loonie’s near-term direction. Despite Saudi Arabia’s recently announced plan to slash production by 1 million barrels per day beginning next month, oil prices have continued their descent toward the month’s lows as black gold is down over 2% this morning.   

MXN

The Peso kicks off a new week trading sideways against the Greenback as USD/MXN traders await word from the Fed to see if the pair’s highly coveted interest rate spread remains intact.  

A Fed hold will be bullish for the Peso and celebrated by carry traders as it keeps the spread in place, while a surprise Fed hike would likely weigh on the Peso.

On the data front, the calendar is bare in Mexico until next week’s retail sales release, leaving MXN’s path in the hands of the Fed and the US Dollar this week.

Meanwhile, Mexico’s ruling National Regeneration Movement (MORENA) announced that the candidate for the 2024 presidential election would be revealed on September 6 after internal polling. With MORENA holding a substantial lead in opinion polls, the party’s internal race winner will be the favorite to win the presidency in 2024.   

BRL

The Real is slipping this morning after posting a nearly 1.6% gain against the Dollar last week – its most significant weekly rise since mid-April. Much of last week’s gains were secured on Friday when BRL ascended to a one-year high. Recent data has shown signs of recovery in the Brazilian economy despite the high-interest rates imposed by Brazil’s Central Bank.

However, despite the positive signs in the economy, a recent poll by IPEC indicates Brazilian President Lula da Silva’s approval ratings have steadily declined since he took office earlier this year. The number of Brazilians who view his government positively dropped to 37% in June from 39% in April and 41% in March. Those who perceive his government negatively increased to 28% from 26% in the previous polls. 

CNY

Another day, another fresh low for CNY. The offshore Yuan fell to a new six-month low against the Greenback this morning as markets look ahead to the trifecta of central bank policy decisions this week, particularly the Fed.

  

Disappointing domestic data out of China has increased expectations that the PBoC will intervene with stimulus as its major US and European counterparts signal that higher rates may remain in place for some time. This divergence in policy outlooks is weighing on the Yuan and puts the PBoC in a precarious situation as the balance of the need for economic stimulus with the need to keep the Yuan from further weakness.

 

Looking ahead, this week’s economic calendar in China will be headlined by Wednesday evening’s retail sales release, where expectations are for a pullback in growth to 13.7% year-on-year after posting an 18.4% rise in the previous print.