Global overview
The U.S. dollar kicked off the third quarter with a gain with activity subdued by North American holidays. The dollar firmed against the euro, sterling, and Canadian dollar ahead of an important week that will shed light on the outlook for global borrowing rates. The dollar index lost ground in June but managed to post a second quarter gain as steady signs of a resilient U.S. economy bolstered Fed plans to raise lending more than once over the latter half of the year. Numbers last week showed consumer spending slowed and inflation cooled. Still, with core inflation remaining elevated it’s keeping the Fed on track to raise rates later this month. The spotlight this week will shine on America’s job market with the June employment report due Friday. While hiring is forecast to slow to 225,000 from 339,000 in May, that’s still seen strong enough to lower unemployment to 3.6% from 3.7%. Canada is closed for a public holiday Monday, while U.S. markets will be closed Tuesday for Independence Day.
Weaker data, weaker euro
The euro started the third quarter with a decline after data aggravated European growth concerns. Euro zone manufacturing proved weaker than initially thought as the region’s PMI was downgraded to 43.4 in June from a previous estimate of 43.6. Numbers below 50 are a worrisome sign as they signal a contracting manufacturing sector. Nevertheless, EUR/USD remains camped near the north end of its range thanks to the ECB’s hawkish rate outlook to bring down inflation.
Sterling fatigued after H1 surge
Fatigue caught up with sterling as it started the summer quarter in lackluster fashion. The pound dominated over the first half of 2023 as high UK inflation suggested several more rate hikes are on the Bank of England’s table. GBP/USD appreciated about 5% over the first six months of the year and climbed as high as 1.28, its strongest level since April 2022. How the pound fares over coming quarters may hinge more on how Britain’s economy tolerates the BOE’s bold rate hikes to bring down the highest inflation among G7 nations at 8.7%.
Loonie subdued in holiday trade
The loonie steadied in holiday trade with Canada observing a public holiday. U.S. markets will close early today ahead of the Tuesday holiday for Independence Day. USD/CAD depreciated by more than three cents in June when it fell as low as 1.3115, its weakest level in nine months. The loonie will take its cues this week from Canada’s June employment report due Friday and forecast to show hiring rebounded with a gain of 20,000 after it shed more than 17,000 jobs in May. Unemployment is forecast tick up to 5.3%. Should the data offer fresh signs of a tight labor market it could spur the Bank of Canda to raise rates as soon as July 12.
Dollar index firm after posting Q2 gain
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: July 3-7
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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.
