Global overview
The U.S. dollar’s rebound from one-year lows faded after data from abroad strengthened the case for higher interest rates elsewhere. The dollar’s pullback lifted the euro and sterling, while Canada’s dollar rose toward recent two-month highs. China fared better than expected during the first quarter when the world’s second-largest economy grew at an annual rate of 4.5% from less than 3% over the final three months of 2022. Sterling recovered from one-week lows against the greenback after faster than expected UK pay growth strengthened the odds for the Bank of England to raise borrowing rates next month. The weaker dollar helped the euro shrug off news that German investor confidence unexpectedly dimmed in April. While weaker Tuesday, the dollar remained in positive territory for the week as signs of a resilient U.S. economy kept the path clear for the Fed to raise rates for a 10th straight meeting in early May. The dollar’s tentative brightening also stems from markets scaling back expectations for U.S. rate cuts by year-end. The highly fluid and uncertain outlook for global lending rates is keeping currencies on a choppy footing.
German confidence ‘banks’ lower
The euro’s retreat from one-year highs stalled as mostly bullish data from the world’s No. 2 economy, China, boosted risk appetite at the expense of safe bets like the greenback. But data showing a surprise decline in Germany’s ZEW survey of investor confidence which slipped to 4.1 in April, compared to forecasts of 15.3, from 13 in March can buy the euro more time below last week’s April 2022 peak. German investor morale moderated in part due to more restrictive credit conditions due to the fallout from banking system instability in the U.S. and Switzerland.
Sterling jumps after hot UK wage inflation
Sterling bounced off one-week lows against its U.S. rival after the latest UK jobs data painted a more hawkish picture of Bank of England policy. British unemployment rose to 3.8% in the three months ending in February, a tick higher than anticipated. But wage growth also surprised to the upside and signaled meaningful upward pressure remains on inflation that’s currently above 10%. British wage growth steadied at an elevated annual rate of 5.9%, compared to forecasts to cool to 5.1%. Markets are now pricing about an 80% likelihood of the BOE raising rates to 4.50% from 4.25% on May 11, with another quarter-point increase penciled in by September.
Loonie little changed after inflation cools to 4.3%
Canada’s dollar steadied after domestic inflation cooled in line with forecasts. Consumer inflation cooled to a 4.3% annual rate in March, the lowest level since August 2021, from 5.2%. The disinflationary trend offered a vote of confidence in the Bank of Canada’s forecast of inflation cooling to around 3% by the middle of 2023. Measures of core inflation also moderated, a sign that Canadian interest rates have likely peaked at 4.5%, a more neutral outlook for monetary policy that can cap gains for the loonie.
Dollar recovers thanks to stronger case for May rate hike
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Apr 17-21
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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.
