Global overview
The U.S. dollar was broadly steady after advancing over the last two weeks with market attention focused on whether Washington will soon reach an elusive deal to raise America’s borrowing limit. The steadier greenback helped the euro and sterling hold above multiweek week lows while Canada’s dollar was little changed. The dollar rose for a second straight week but bled some strength after late week remarks from Fed Chairman Powell stopped short of cementing expectations of another U.S. interest rate hike in June. Mr. Powell’s remarks seemed more aimed at walking back expectations of U.S. rate cuts by the end of the year and less about laying the groundwork for an imminent rate increase. Consequently, the Fed chief’s remarks Friday cooled the dollar’s rebound but failed to deal it a major setback. Moreover, the safer bet dollar could remain in vogue if skepticism rises in Washington striking a debt agreement before next week’s deadline. The debt dilemma will continue to dictate market sentiment, along with remarks this week from Fed officials and late week U.S. numbers on inflation and consumer spending.
Euro looks to data for direction
The euro rose above seven-week lows against its U.S. rival after less than hawkish remarks from the Fed chair Friday led to a repricing in prospects for a U.S. rate hike next month. Markets this morning are pricing a less than 20% chance of the Fed hiking rates in mid-June compared to about a 40% likelihood earlier last week. For the euro to show signs of bottoming, though, European numbers this week would need to snap a recent streak of underperformance. That puts the focus on Tuesday purchasing managers’ indexes and a Wednesday reading of German business confidence.

Forecast calls for cooler UK inflation
Sterling held above three-week lows against the U.S. dollar but kept to the lower end of its range ahead of UK numbers this week that will shed light on the outlook for Bank of England policy. The big number to watch is a midweek reading of British consumer inflation which is forecast to dip below 10% for the first time since August 2022 with forecasts of prices cooling to an 8.3% annual rate in April from 10.1% in March. Slower inflation would be consistent with UK borrowing rates topping out sooner rather than later.

C$ holds its own versus greenback
Canada’s resilient dollar was little changed after it rose last week versus its otherwise stronger U.S. peer. The loonie has bucked the trend of a stronger U.S. dollar so far this month, helped by the notion that Canada may not be done raising lending rates to curb inflation. Until last week, markets had bet on the next move being lower for Canadian interest rates, but that changed after area inflation unexpectedly ticked up to a 4.4% annual rate in April, the first increase in 10 months. Still, the loonie has struggled to build on its gains given that the BOC has sketched a steady course for lending rates over coming months.

Dollar’s rebound loses steam
Table: rolling 7-day currency trends and trading ranges

Key global risk events
Calendar: May 22-26

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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.