USD

The US Dollar is on the rebound this morning after falling around 0.8% yesterday – its largest single-day drop since March on route to its lowest level in over two weeks. Despite the bounce back heading into the US session, the Greenback has a lot of ground to make up if it hopes to avoid closing in the red for the second consecutive week.

The weaker Dollar as of late can be attributed to expectations of a peak in US rates, although the recent rate hike by the BoC has injected some uncertainty into the markets. 

Markets are pricing in over a 70% chance of a Fed hold next Wednesday, bolstered by yesterday’s surge in initial jobless claims to their highest level since October 2021.

EUR

The Euro posted its most significant single-day jump yesterday as traders brace for next Thursday’s ECB decision, where another 0.25% seems inevitable. EUR/USD now looks to hold on to its gains and close in the green for the first time in 7 weeks.

The European calendar is light today, with the lone release for traders to analyze being Italian industrial output, which saw a significant decline of 1.8% in April compared to March, the biggest drop since September 2022. April’s decline marks the fourth straight month of contraction as the sector continues to feel the squeeze of tighter monetary policy. The year-on-year picture was equally gloomy, with production dropping 7.2%, the most significant decline in nearly three years.

GBP

The Pound is trading sideways this morning after an impressive 1% surge against the Greenback yesterday en route to a four-week high. GBP/USD is now on pace for its second straight week of solid gains as it looks to return to the May highs.

The Pound is supported by the expectation that UK rates will continue to rise as the BoE battles high inflation. However, there is still concern that coining to tighten monetary policy would stifle the overall economy and may hurt, rather than help, the Pound.

The next marquee release out of the UK comes Tuesday, with April unemployment and average earnings data on tap.

JPY

The Yen is on track for its first set of back-to-back winning weeks since March after yesterday’s solid 0.8% gain. However, it has returned some of those gains this morning after BoJ Governor Ueda once again professed his commitment to ultra-low interest rates in Japan.

Ueda cited strong corporate and household spending offsetting slowing overseas demand as the reason for his positive economic outlook. He also expects core consumer inflation to fall below their 2% target by early 2024.

The focus now shifts to the BoJ monetary policy statement set for next Thursday to better understand where Ueda and Co. stand. 

CAD

The Loonie began the day in the green but has given back most of those gains after the release of Canadian employment data.

Canadian economy surprisingly lost 17.3K jobs in May, contrary to expectations of a 23.2K increase. The drop in employment was primarily driven by a significant fall in the number of self-employed workers. Additionally, the unemployment rate increased to 5.2%, marking the first monthly rise since August 2022 and suggesting that the labor market may be feeling the impact of higher interest rates. 

Unemployment was particularly high among people aged 55 and older, while the overall participation rate fell by 0.1%.   

MXN

The Mexican Peso is inching higher this morning after posting a slight loss yesterday and is well in the green for the week heading into the final session.

Yesterday’s inflation read showed that price pressures in Mexico were slowing, leaving MXN traders wondering when they could expect Banxico to begin cutting rates. Last week, Bank of Mexico Governor Victoria Rodríguez signaled that rates would remain in place for an extended period but did not give a specific timeline. If the downward inflation trend continues, bets on rate cuts could gain more traction heading into Q3.

On the data front, Mexico’s industrial production grew by 0.7% year-on-year in April, marking the 18th consecutive month of growth but the weakest since October 2021. Meanwhile, on a monthly basis, output rose by 0.4%, following a decline in March.   

BRL

The Brazilian Real is modestly higher this morning as Brazil’s financial markets reopen after yesterday’s holiday. BRL heads into the US session on pace for its best week since late April and is tracking for its third-straight week of gains against the Dollar.  

Interest rates remain an essential conversation in Brazil, and a recent study from Brazil’s National Confederation of Industry shows the impact of rates on the country. The study shows high-interest rates are a significant challenge for 71% of companies seeking credit, 25% face obstacles due to collateral requirements, and 16% express dissatisfaction with the availability of suitable credit lines. 

CNY

The Yuan is on track for its fifth-consecutive losing week as it begins the day trading down toward the new six-month lows seen earlier in the week. The latest setback comes on the heels of new inflation data out of China overnight.

 

China’s consumer price index rose 0.2% year-on-year in May, coming in below expectations and marking the fourth straight month of declines. Meanwhile, China’s producer prices fell 4.6% year-on-year in May, the eighth consecutive month of deflation, as demand falters while commodity prices stabilize.

 

Meanwhile, bets on a potential PBoC rate cut in July have recently increased after six state-owned banks cut their deposit rates.