Daily Market Pulse

USD

The US economic calendar is light today ahead of tomorrow’s Fed decision, but that hasn’t stopped the Dollar from making moves. Fresh off a 0.44% gain on Monday, the Dollar Index is slightly higher again this morning, fueled by broader risk-off sentiment and a slate Eurozone data that could temper the ECB’s hawkish tone. The risk-off view is primarily driven by market nerves surrounding yet another US bank failure – the latest, First Republic Bank, the second-largest bank failure in US history. In addition, investors are digesting news out of Washington that the US could run out of money to cover its obligations as early as June 1, according to Treasury Secretary Janet Yellen. The news sent Treasury yields to their highest level since 2007 and lent support to the US dollar against most of its major counterparts.   

EUR

It has been a busy morning for the Euro. This morning’s inflation numbers showed the Eurozone yearly inflation rate increased slightly to 7.0% in April from 6.9% in March, remaining significantly above the ECB’s target of 2.0%. While energy prices rebounded, inflation slowed for food, alcohol & tobacco, and non-energy industrial goods. The core inflation index remained close to its all-time high, although it did come in below market expectations. Meanwhile, German retail sales came in significantly worse than expected, and the ECB’s bank lending survey indicated the negative impact of higher interest rates is being felt by both the consumer and the banking sector. 

Given this morning’s data, market expectations are for a slightly less hawkish ECB this Thursday, although a 25-basis point hike is still being priced in. 

Initial reaction to the news has put EUR/USD in the red for the fourth straight day, although it has come off the lows heading into the US session.       

GBP

The Pound continues its tough start to the week after hitting new 2023 highs last Friday. GBP/USD fell 0.55% yesterday and is on the back foot again today as the pair has nearly wiped out all its gains from Friday. One small bright spot out of the UK today was this morning’s manufacturing PMI release came in better than expected, although not strong enough to avoid a manufacturing sector downturn for the ninth consecutive month. 

JPY

USD/JPY has pulled back slightly this morning after soaring 2.84% over the last three sessions. With little data coming out of the US or Japan, the pullback is more indicative of a trade getting too crowded rather than any macroeconomic factors. With little data set to come out of Japan this week, the pair will remain driven by broad US dollar sentiment and any rumblings out of the BoJ that they may be ready to shift away from their persistent dovish stance.

CAD

The Loonie is retreating again today ahead of tomorrow’s Fed decision, with US and Canadian data on the horizon for Friday. USD/CAD is up 0.35% to start the day, with no Canadian data on tap today for markets to digest. Oil prices aren’t doing the Loonie any favors of late, as worries about the global economic downturn have raised concerns regarding the demand for oil in the coming months. The impact can be seen in the commodity-driven USD/CAD pair.

MXN

Fresh off a bank holiday, the Mexican Peso began the day lower as lower oil prices and broad risk-off sentiment paused the rally of one of the top-performing currencies to date. The economic calendar is empty on the Mexico front until Thursday, when the consumer confidence and jobless rate are set for release. The expectations are for both to align with the previous month’s reading. 

BRL

As Brazilian markets reopen from holiday, USD/BRL came out of the gates strong this morning – up over 0.60% in reaction to weaker-than-expected Brazilian manufacturing data. However, BRL traders are firmly set on the Central Bank of Brazil ahead of tomorrow’s rate decision. Expectations are that rates will remain unchanged in Brazil. Still, with the bank revising its inflation projections again last week, many are curious to see how this impacts their policy outlook for the rest of 2023.  

CNY

With Chinese markets closed until Thursday, there is little for Yuan traders to digest today outside of movements in the US dollar. However, China has essential manufacturing data set for release tomorrow and services PMI on deck for Thursday. Expectations are for April manufacturing PMI to hold firm near the March reading, while a decline in services PMI is also anticipated.