USD

The US Dollar continues its impressive run, now trading near seven-week highs and on pace for its fifth winning day of the past six. The Greenback is slowly inching closer to positive territory on the year, although still well off the March highs, as markets process this morning’s jobs and manufacturing data while continuing to wait on a US debt ceiling resolution.  

Initial jobless claims came in at 242K, better than the expected 254K and the previous read of 246K, while continuing jobless claims also came in less than forecasted. Meanwhile, the Philadelphia Fed Manufacturing Index rebounded in May at -10.4, indicating a slower decline in general manufacturing activity than expected.

On the debt ceiling front, top leaders from both sides of the aisle, including President Biden and House Speaker McCarthy, expressed confidence yesterday that the US will not default on its debt as negotiations over the debt ceiling continue. The remarks signal negotiations are progressing and a potential deal may be on the horizon. However, House Republicans have stated their insistence on future spending cuts before agreeing to raise the debt limit.  

EUR

The Euro begins the morning in the red for the third straight day as the Dollar-rally keeps the Euro grounded. EUR/USD traded near six-week lows this morning as comments from Vice President de Guindos failed to impact the pair much. Vice President de Guinos mentioned that there is still room to raise rates, although most of the tightening needed has already happed.  

Looking ahead, the European calendar is light to close out the week. The only data point of significance on tap is German PPI data for April. Markets forecast a month-on-month price decline of 0.5% after registering a 1.4% drop in February.

GBP

Sterling is on the decline this morning as GBP/USD retests the three-week lows once again. 

The pendulum is beginning to swing on expectations toward the Bank of England’s future rate hikes. Markets are now expecting fewer rate increases this year on the heels of underwhelming UK jobs data and softer tones being struck by BoE Governor Bailey. That said, UK inflation remains well above the BoE’s target band, so the Bank faces the difficult challenge of trying to combat inflation without tightening to the point of further straining an already fragile UK economy.

With no major data on the UK calendar until Tuesday’s PMI release, the short-term path of the Pound is likely to be heavily influenced by market sentiment, which heavily favors the Dollar at the moment.

JPY

The Yen fell to its lowest level since March this morning and is testing the December 2022 low as JPY paces for a six-day loss – its longest streak since October 2022. On the data front, Japan's trade deficit narrowed to JPY 432.4B in April, lower than expected, marking the 21st consecutive month of a shortfall. The decrease was driven by a 2.6% jump in exports, the 26th consecutive month of such growth, while imports declined by 2.3%, the first drop in more than two years, influenced by a stronger yen and lower commodity prices.  

Next up on the economic calendar is Japanese inflation data set for release this evening. Market expectations are for year-on-year declines in consumer prices, with headline CPI forecasted to show a 2.5% increase in April on a year-on-year basis.

CAD

The Loonie finished modestly higher against the Greenback yesterday, although much of those gains were returned this morning before US and Canadian data were released. The Canadian new housing price index showed a modest decline of 0.1% month-on-month – in line with market expectations. Canadian unemployment data was also released this morning, which showed the number of people receiving unemployment benefits fell 0.6% in March after slumping 3% in February.

Next up on the calendar is Canadian retail sales data set for release tomorrow before Canadian traders head out for the Victoria Day long weekend. 

MXN

The sell-off in MXN continues this morning as the Peso crawls into the US session down over 0.7%. The move marks a sharp reversal of fortune for the Peso, which is now deep in the red on the week after surging to a seven-year high earlier this week. The losses come as traders brace themselves for the 3:00 PM EST Bank of Mexico decision, expecting a pause in the current tightening cycle. In addition, the Peso is also feeling the effects of a broad shift into the dollar amidst market uncertainty, as investors hesitate to place heavy bets on emerging markets against a backdrop of global macro headwinds.   

BRL

The Brazilian Real rebounded from yesterday’s early losses and closed the day slightly in the green but is back on the decline this morning. BRL begins the day down around 0.5% against the Dollar and nearly 1% on the week. Yesterday’s impressive retail sales data out of Brazil helped temporarily boost the Real, but the move proved unstainable amidst the broad demand for USD.

The next important day for BRL on the data front is Thursday - when May’s mid-month inflation figure is set for release.  

CNY

The painful week continues for the Chinese Yuan, which fell to a five-month low today and is now down over 1% on the week. Barring a remarkable reversal of fortune, CNY is headed for its ninth losing week out of the last 10 ahead of Sunday’s awaited PBoC interest rate decision. 

The disappointing data out of China against a backdrop of geopolitical tensions with the West has increased speculation that China’s central bank would need to loosen monetary policy at some point, although it is unclear if they are prepared to cut rates as soon as this upcoming meeting