Global overview
The U.S. dollar sat atop multiweek highs ahead of new readings on an economy that has displayed surprising resilience. Greenback firmness kept the euro, sterling, and Canadian dollar near two-week lows. The dollar staged a recovery over the latter half of June thanks to solid U.S. data and the Fed signaling higher interest rates to bring down inflation. Supporting the Fed’s higher rate view, numbers this week showed the most confident American consumer in 17 months and the largest drop in weekly jobless claims in 20 months. It also helped that U.S. first quarter growth enjoyed a larger than expected upgrade to a 2% annual pace. The economy’s resilient run is tempering recession fears and is keeping the Fed on track to resume rate hikes as soon as July. The yield on America’s benchmark 10-year Treasury note closed at 3.85% Thursday, the highest level since March. Today brings new data on U.S. consumer spending and key gauges of inflation that the Fed monitors most. A measure of core inflation is forecast to steady at an elevated 4.7% annual rate in May.
Euro shadows area inflation lower
Europe making progress on its inflation fight weighed on the euro as it slipped to two-week lows. Euro zone inflation cooled more than expected to a 5.5% annual rate in June, down from 6.1% in May, and just below forecasts of 5.6%. Less volatile core inflation ticked up to 5.4% from 5.3% but printed below forecasts of 5.6%. Lower inflation, coupled with a weaker growth outlook, could mean that area interest rates don’t peak has high as markets currently anticipate, a view that added thrust to the euro’s recent pullback.
Growth concerns gnaw at sterling
Sterling was set to end a bullish second quarter on its back foot and near two-week lows versus its U.S. rival. GBP/USD has appreciated around 2.5% during the spring quarter thanks to Britain’s alluring 5% yield that’s the highest in 15 years and roughly on par with U.S. lending rates. The pound’s gains have faded of late with GBP/USD down from one-year highs earlier this month near 1.2850. The Bank of England’s pledge to push rates even higher to quash inflation has not inspired confidence in an economy that posted scant growth of just 0.1% during the first quarter.
U.S. and Canadian currencies tugged lower by data
Canada’s dollar was on track for its first weekly fall in five weeks after weaker than expected growth cast doubt on Ottawa raising rates in July. Canada’s economy stalled with zero growth in April which fell short of forecasts of a 0.2% increase. The loonie had its fall slowed after Canada forecast faster growth of 0.4% for May. Elsewhere, the U.S. dollar pared gains after data highlighted economic unevenness, suggesting less wiggle room for the Fed to raise rates. Core, or underlying, inflation cooled a tick to a 4.6% annual rate in May, slightly below forecast, while consumer spending was up just 0.1%, a marked slowdown from 0.8% in April.
Dollar clings to north end of ranges
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Jun 26-30
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
