Daily Market Pulse

USD

The Dollar finished in the green again yesterday, reaching a six-week high, and is now up around 2% in the last month. The rally continues this morning, driven by growing concerns about a potential slowdown in the US economy fueled by recent data releases. Despite the data, expectations for interest rate cuts later this year have been dampened by solid consumer spending in April and hawkish comments from some Federal Reserve officials, including Atlanta Fed President Bostic and Chicago Fed President Goolsbee, who have emphasized the need to continue the fight against inflation and cautioned against premature discussions of rate cuts. 

Meanwhile, President Biden and House Speaker Kevin McCarthy engaged in talks yesterday to avoid a US debt default. However, according to Speaker McCarthy, they remain far apart on an agreement. Nevertheless, the ongoing discussions continue to keep markets on edge, which bodes well for the Dollar and other safe-haven assets in the short term. 

EUR

The EUR/USD is on the decline this morning and is back trading near five-week lows after a mixed bag of inflation data fails to provide the Euro with a pushback against a stronger Greenback. The Euro Area's consumer price inflation in April remained at 7% in the final print, slightly above the previous month's 13-month low. Despite some moderation in certain categories such as food, alcohol, tobacco, and non-energy industrial goods, the overall inflation rate continues to significantly exceed the ECB's target of 2%, suggesting the ECB may have more rate hikes in them yet.

GBP

The Pound fell to three-week lows this morning against the Dollar as GBP/USD clings to modest gains on the week. Earlier, Bank of England Governor Bailey reiterated his expectation of easing inflation, although mentioning further policy tightening is on the table if inflation persists. Bailey also noted signs of a slight weakening in the labor market after the data release showing an increase in the jobless rate to 3.9%. 

With a light UK economic calendar for the rest of the week, much of the GBP’s short-term moves will likely be driven by broad-market sentiment and USD demand ahead of next week’s data-filled in the UK – highlighted by inflation and services PMI.

JPY

The Yen enters the US session on pace for its fifth consecutive losing day – dropping around 2%. The losses were fueled by the release of Japan's highly anticipated GDP report, revealing a 1.6% year-over-year increase after contracting in each of the previous two quarters. From a quarter-on-quarter perspective, the economy grew 0.4% in Q1 – the fastest pace since Q2 of 2022. Both figures came in well above expectations, but the positive headlines did little to deter Dollar bulls from keeping control of the USD/JPY pair, which trades near two-week highs this morning.

CAD

The Loonie is one of the few majors to have any success against the USD this morning – up a modest 0.05% against the Dollar. This comes a day after closing in the red on the heels of yesterday’s news of a surprising jump in inflation in Canada. Loonie traders now shift their attention to Friday’s retail sales data. Expectations are for March month-on-month figures to show declines of 1.4% after posting a 0.2% drop in February.  

Meanwhile, foreign investment in Canadian securities declined in March as investors pulled $19.1B out of Canadian securities – the most significant divestment since September. The biggest divestments were seen in Canadian debt securities and stock of Canadian banks.

MXN

The Peso is down nearly 1% this morning as traders shift out of EM currencies in favor of the Greenback. MXN is now on track for its second-straight day in the red after pushing above the May 2016-high on Monday – putting its five-week win streak in jeopardy. Peso traders close the week with the much-anticipated Bank of Mexico interest rate decision tomorrow, followed by March retail sales on Friday. Markets expect Banxico to hold firm on rates while forecasting retail sales to decline slightly on a year-on-year basis.    

BRL

The Brazilian Real has gone negative on the week and has given back all last week’s gains as Dollar strength weighs on LATAM currencies.  The declines come despite solid March retail sales data out of Brazil, which surprisingly rose 0.8% month-on-month versus an expected 0.8% decline. 

The main drivers of the rise included sales of office, IT, and communication equipment, pharmaceuticals, furniture, and household appliances.  Meanwhile, the year-on-year figure rose by 3.2%, the biggest jump in six months and far better than the expected 0.1% contraction expected.  

CNY

The Chinese Yuan continues to falter this morning, breaking through a five-month low as the string of misses on economic data coupled with rising geopolitical tactics prove too much to handle for CNY. On the data front, China's April indicators have almost unanimously shown disappointing results, led by yesterday's industrial production and retail sales release. 

Meanwhile, the upcoming three-day annual G7 summit in Japan will see the leaders of Canada, France, Germany, Italy, Japan, the UK, and the US hold discussions on China's utilization of retaliatory trade tactics and is expected to propose coordinated measures to combat it – which some have speculated may include restrictions on investment into China.