The US Dollar is slightly lower on the day but still clinging to a six-month high thanks to an impressive nine-week winning streak, its best stretch since 2014.
This week's headline event will be the Fed's upcoming interest rate decision on Wednesday, even though markets are fully pricing in a pause this time around. The focus will be on the revised economic projections and dot-plot accompanying the monetary policy statement. The previous dot-plot in July showed that the Fed anticipated two more rate increases by year-end. Only one has occurred, so traders will be keen to see if the Fed still sees a second rate-hike as its base case.
The Euro is inching higher for the second-straight day as it looks to snap a dismal nine-week losing skid, its longest streak since the inception of the Euro in 1999. The EUR/USD has been consistently weighed down by weak Eurozone fundamentals on top of the overwhelming strength of the Greenback.
Following last week's dovish hike from the ECB, markets are pricing in higher odds of a peak in Eurozone interest rates. However, ECB officials have yet to officially rule out further tightening. Earlier today, ECB policymaker Peter Kazimir expressed hope that the September rate hike would be the last. Still, he acknowledged the possibility of further increases, emphasizing the importance of the March forecast in confirming their inflation goal.
The British Pound is somewhat higher this morning as Cable traders gear up for a double dose of central bank action later this week, with the Fed and BOE set to announce their latest interest rate decisions this Wednesday and Thursday, respectively.
While the Fed is likely to stand pat, market pricing points to another 0.25% from the BOE that would take UK rates to 5.5%, the highest level since 2008. As with the Fed decision, traders will be most interested in hearing the committee's revised economic outlook and where they stand on future interest rates.
Tomorrow, the BOE will get one last look at inflation before their decision, with UK CPI and PPI on deck for 2:00 AM EST.
The Japanese Yen is slightly higher this morning against the Dollar, although activity has been limited due to a bank holiday in Japan. With the Fed and BOJ on the docket this week, the Yen is in a fragile position. Despite this morning's modest gains, the Yen remains glued to its lowest level since November 2022 and has dropped over 11% year-to-date.
While markets may have initially interpreted last week's comments from Governor Kazuo Ueda as a sign that the central bank may soon end its negative rates policy, boosting the Yen, that optimism quickly faded as the week went on and sent the Yen back into the red for the week.
After posting its first winning week since mid-July, the Loonie is back in the green today as USD/CAD traders brace for an action-packed week ahead.
Tomorrow, Canada's inflation read for August is scheduled for release at 8:30 AM EST. Headline inflation is projected to rise to 3.8% year-on-year, accelerating for the second straight month after falling to 2.8% in June.
However, on a monthly basis, inflation is expected to cool to 0.3% from 0.6% in July. In addition, the trimmed-mean CPI, the BOC's preferred inflation gauge, is expected to slow to 3.5% after coming in at 3.6% in July.
The Mexican Peso begins the day in the red after posting five consecutive winning days en route to its best week since November 2022. After a rapid 5% selloff following the surprise announcement that Banxico would phase out its FX hedging program, the Peso has resumed its dominant run, seeing the currency appreciate 12% against the Dollar in 2023.
Earlier today, Mexico's latest consumer spending report showed an annual increase of 4.3% in Q2, down slightly from the 4.8% seen in Q1. Meanwhile, aggregate demand cooled to 4.8% in the same period, down from 5.2% in Q1.
The Brazilian Real is up 0.2% this morning, building on the momentum from last week's 2.3% surge, its best weekly performance versus the Greenback since April.
Looking ahead to tomorrow, Brazil's latest economic activity index, used by the BCB as a leading indicator for GDP, is set for release at 8:00 AM EST and is expected to show output growth moderating to 0.3% in July from 0.6% in June. Still, it would be the first time since January and February this year that the index has posted consecutive months of growth.
After gaining over 1% in the offshore market last week, its best week since February, the Chinese Yuan is pulling back this morning as CNY traders get set for this Wednesday's Fed decision. The PBOC will also have a decision to make on their loan prime rates, although markets expect the bank to hold steady this time around after electing to cut the one-year rate to a record low in August.
Outside of the PBOC decision, the domestic calendar is fairly empty this week, leaving the Yuan to beat to the drum of the US Dollar.