USD

The Dollar is on the decline this morning as markets digest the latest US jobs data while still trying to get a read on interest rates ahead of next week's Fed decision.

US jobless claims unexpectedly rose to their highest level since October 2021, reaching 261K last week against market expectations of 235K. This marks the third consecutive week of increasing initial jobless claims, suggesting a potential weakening in the labor market. However, continuing claims decreased to 1.757M, below forecasts of 1.794M.

Meanwhile, surprise rate hikes by the BoC and RBA indicate that central banks, including the Federal Reserve, may need to take additional measures to address inflation. The focus is now on the Fed's June 14 interest rate decision and the accompanying interest rate and economic projections. Markets are currently pricing in a 70% chance of rates being held in June and a 30% chance of a 0.25% hike. In addition, the probability of rate cuts later in the year has significantly diminished over the last month or so, with 2024 now seeming the more likely time horizon for the Fed to begin loosening monetary policy. 

EUR

After barely finishing higher yesterday, the Euro is up 0.4% after this morning's Eurozone and US data.

The headline release was the Eurozone Q1 GDP print, which showed the shared economy unexpectedly contracted by 0.1%, led by a 0.3% contraction in Europe's biggest economy, Germany. The decline officially pushed the bloc into recession after the Q4 2022 Eurozone figure was also revised to show a 0.1% fall. Significant catalysts for the slowing economy include decreased household expenditure and reduced public spending due to high inflation, borrowing costs, and governments rolling back stimulus measures.

Despite the report, there were some positive signs, with modest growth recorded in France, Italy, and Spain, while Eurozone employment increased by 0.6% in Q1, the strongest growth rate since Q4 2021.

GBP

The Pound is up around 0.3% heading into the US session after snapping a three-day losing streak against the Greenback yesterday. With a quiet calendar in the UK until next Tuesday's unemployment read, GBP/USD will likely beat to the drum of the US Dollar for the rest of the week as traders position themselves for next week's Fed decision.

Despite the lack of new data, inflation remains a talking point in the UK as Prime Minister Rishi Sunak declared personal responsibility if he fails to fulfill his promises of halving inflation and growing the UK economy by the end of the year, setting these targets as part of his priorities ahead of the expected 2024 UK election. Forecasts from the OECD still project that the UK will have the highest inflation among leading economies in 2023, though it did raise its growth projections for the UK.

JPY

After a promising start, the Yen failed to hold onto its early gains yesterday and closed the day down around 0.3%. JPY is up around 0.4% this morning as traders mull new data from Japan and the US.

The Japanese economy experienced better-than-expected growth in Q1 2023, surpassing market forecasts with a 0.7% quarter-on-quarter expansion. This was driven by increased private consumption after the removal of pandemic measures and continued growth in capital expenditure and government spending. However, net trade weighed on GDP as exports fell due to ongoing global trade uncertainty.

Additionally, the sentiment in the service sector improved in May, reaching its highest level since December 2021, although concerns over rising prices affected the economic outlook.

CAD

The Loonie is back in the green this morning after leaping to four-week highs against the Dollar after yesterday's 0.25% rate hike from the BoC.  

The Bank of Canada surprised markets by raising interest rates to 4.75%, the highest level in 22 years, due to concerns about high inflation and strong economic growth. 

The move has caused traders to recalibrate their view on future rate hikes in Canada, with markets now pricing in a 60% chance of another rate increase in July and nearly a 100% chance of at least one hike by September.

This decision has caused investors across the globe to shift attention to the Fed and ECB, which are both set to determine their own rates next week, as markets brace for higher-for-longer rates across most major economies.  

MXN

The Mexican Peso is pulling back slightly after US jobs data after trading at an eight-year high earlier and posting its fifth-straight winning day against the Greenback yesterday. 

Today's move comes as MXN traders parse through this morning's US jobs data on top of lower-than-expected inflation data out of Mexico.

Headline inflation in Mexico fell 0.22% in May, more than the expected decline of 0.16%, driven by slower price increases in food, beverages, and tobacco and a sharper reduction in energy costs. Meanwhile, 12-month inflation rose 5.84% against an expected increase of 5.9%, its fourth consecutive month of declines and lowest since August 2021, but still exceeding Banxico's target range.

In addition, core inflation for May was roughly in line with expectations at 0.32%, highlighting persistent price pressures in the index.   

BRL

The Brazilian Real is set for a quiet day today as Brazilian traders are off on Holiday. Yesterday, BRL dropped around 0.2% against the Dollar, its first losing day in a week, on the heels of May inflation data showing prices in Brazil are on the decline, increasing the odds of Brazil's central bank conceding its hawkish position on interest rates in the coming months. Brazil's Planning Ministry quickly pounced on the latest data, stating that the inflation read proved that disinflation is well underway as the government continues its full-court press on central bank leader Roberto Campos Neto to cut rates.

The economic calendar will remain light until next Wednesday, when Brazil's retail sales data is set for release.  

CNY

After breaking new six-month lows yesterday, the Yuan has curbed its losses this morning ahead of this evening's release of inflation data out of China. Markets expect consumer inflation to remain mostly unchanged, although producer prices are expected to show a 4.3% drop year-on-year after posting a 3.6% decline in the previous period.

 

Despite the weak data out of China as of late, PBoC Deputy Governor Pan Gongsheng expressed confidence in keeping the Yuan stable moving forward. Meanwhile, China's foreign exchange reserves decreased to USD 3.177T in May, the lowest in three months, while yields on Chinese government bonds fell, reflecting expectations of additional stimulus measures on the horizon.