USD

The US Dollar is in the green for the first time this week as the Dollar Index breaks through to fresh two-month highs.  The primary catalyst for the move was China’s dismal manufacturing PMI release, showing yet another sign of a faltering post-pandemic recovery and triggering a market risk-off shift.  Additionally, European inflation rates cooled faster than anticipated, reducing pressure on the ECB to raise interest rates, and pushing flows out of the Euro into the Greenback.

Meanwhile, the debt ceiling bill cleared an essential procedural hurdle yesterday after the House Rules Committee passed the bipartisan legislation for debate in the full House on Wednesday with a 7-6 vote with opposition from two Republicans and all four Democrats.  The bill moves to a House vote later today, followed by a move to the Senate for a final vote later this week. 

EUR

The Euro is down this morning and traded through 10-week lows after a full slate of inflation figures was released across the Eurozone.  

In France, inflation reached its lowest level in a year, driven by moderated energy and food price increases.  While inflation remains above the ECB’s target of 2.0%, smaller increases were observed in energy, food, manufactured goods, and services.

Meanwhile, in Germany, inflation dropped to 6.1% year-on-year in May, reaching its lowest since March 2022.  The decline was attributed to slower increases in energy and food prices, with energy costs rising by 2.6% and the price of food advancing by 14.9%. 

Although inflationary pressures eased, the rates remained well above the European Central Bank’s target of 2%.

In addition, the Eurozone’s economic sentiment indicator declined to 96.5, hitting its lowest level since November 2022 due to a stagnant economy, high inflation, and rising interest rates.

GBP

After advancing nearly 0.5% yesterday, the Pound has given back more than half of those gains this morning as market jitters saw traders head for the safe-haven Dollar.  Heading into the final session of May, the Pound is sitting down around 1.5% against the Greenback for the month.

Investors are closely monitoring expectations for the BoE’s interest rate. 

There has been a significant shift in rate hike expectations as of late, with a nearly 0.25% of rate hikes being priced out from last week.  However, there are still rate hikes on the horizon for 2023, as borrowers in the UK have been warned to prepare for interest rates surpassing 5% by the end of the year due to rising food costs keeping consumer prices well over the BoE’s target.

JPY

The Yen is inching higher again this morning after news that the Japanese government would closely monitor currency market movements and respond as needed, raising the possibility of intervention to curb the Yen’s decline.

On the data front, Retail sales in Japan increased for the 14th straight month, adding 5% year-on-year in April, although slowing from a revised 6.9% gain in March and missing expectations for a 7% growth.

In addition, industrial production in Japan unexpectedly fell by 0.4% month-over-month in April, marking the first decline since January.  On a year-on-year basis, output decreased by 0.3%, making it six straight periods of decline.

CAD

The Loonie is back down near the monthly low as a stronger Dollar and collapse in oil prices overpower a stronger-than-expected Canadian GDP print. 

The Loonie is now on pace for its second consecutive losing month, trading down nearly 0.7% for May heading into the final US session.

The Canadian economy rebounded in Q1, growing by 0.8% and surpassing both market expectations of 0.4% growth and the BoC’s forecast for weak growth for the rest of 2023.  The rise was driven by increased exports, particularly in autos, precious metals, and grains, while household consumption improved, although housing and business investments declined due to higher interest rates.

MXN

After beginning the day strong, the Mexican Peso reversed course yesterday and closed down 0.4% against the Dollar.  The decline has continued this morning as broad demand for Dollars weighs on USD/MXN. 

Despite the losses, the Peso is still on track for its eighth winning month out of the last 10 – currently sitting up over 1.5% against the Greenback.

With a quiet calendar until Friday’s jobless claims release, MXN is at the whims of overall market sentiment and oil prices, which have plummeted nearly 8% this week and are on track to retest the November 2021 lows.    

BRL

Like many of its LATAM counterparts, the Brazilian Real see-sawed yesterday en route to another close in the red and on pace for its first losing month since February. 

The slide comes amidst signs of slowing inflation in Brazil, which is increasing pressure from President Lula da Silva for the central bank to cut rates to do so.

Meanwhile, Brazil’s unemployment rate in the three months leading to April was 8.5%, slightly higher than the previous three-month period but lower than market expectations despite high-interest rates in Brazil.  In addition, the number of unemployed individuals remained stable, while the employed population decreased, and earnings remained relatively stable compared to the previous quarter.

CNY

The Yuan’s free fall continues this morning as CNY sinks to fresh six-month lows against the Dollar after another gloomy look at China’s manufacturing sector.  

China’s manufacturing activity contracted even more than expected in May, reaching a five-month low due to domestically and globally weakening demand.  The bearish factory activity and other lackluster economic indicators suggest that China’s post-reopening recovery is losing momentum, putting pressure on policymakers to support the economy.

In addition, China’s non-manufacturing sector expanded slowly for the fifth consecutive month.  The contraction in new orders, foreign sales, and employment, along with a decline in input and selling prices, suggests a weakening in the services sector, while sentiment also fell to a five-month low.