Global overview
Easing worries about a U.S. debt default and caution ahead of big numbers on the world’s biggest economy conspired to coax the greenback below multimonth peaks. The softer buck allowed the Canadian and British currencies to rebound from multiweek lows and saw the euro edge up from a two-month bottom. While softer early Friday, the U.S. dollar index was on pace for a third gain in as many weeks. The mood music in Washington seemingly improved, fanning cautious optimism that America might reach a deal to raise the $31.4 trillion borrowing cap ahead of the early June deadline. Hopes for a debt agreement led traders to wade cautiously into risky assets at the expense of the haven dollar. The greenback remained well-supported, as steady signs of a resilient U.S. economy cast doubt on the Fed pausing interest rate hikes. Big ticket data loom today that will influence the Fed’s near-term rate path with numbers on consumer spending and inflation. Core inflation will be key as any cooling from a 4.6% annual rate would dampen rate hike expectations and likely pressure the dollar, while a lack of improvement would emphasize the Fed’s higher for longer rate posture that’s been positive for the dollar.
Euro catches a breather
The euro moved above two-month lows against the greenback but was on track for another week of declines. Euro sentiment suffered another blow this week in the wake of news that Europe’s biggest economy slipped into recession. Moreover, a spate of underwhelming data of late suggests the German downturn was at risk of extending into the spring quarter. The euro has shed about 3 cents, or 3.1%, since it clocked one-year peaks in late April, a decline that has it on neutral ground for the year. 1.07 is serving as solid support for EUR/USD but a break below that key level could herald a faster pace of depreciation.
Sterling bounces off 7-week low
Sterling rose above early April lows thanks to a cautious rebound in risk sentiment that weighed on haven bets like the U.S. dollar. Still, the UK unit was at risk of a third slide in as many weeks against its U.S. counterpart. Pound sentiment suffered a setback this week after another hot UK inflation report fanned concerns that continued interest rate hikes by the Bank of England could stoke a hard landing for the economy that slams the brakes and spurs a significant rise in joblessness. Fading optimism about the UK economic outlook has caused the pound to surrender 3 cents since its bounce to 1-year peaks earlier this month.
Loonie stabilizes; Hot data lifts greenback
Canada’s dollar steadied after sinking to four-week lows on Friday. Tentative hopes that Washington was on track to raise the debt limit and avoid a disorderly default helped fan a rally for oil markets after Thursday’s slide below $72. Another hot set of readings on the U.S. economy helped the greenback move off session lows, numbers that will make a Fed rate hike next month more likely. Consumer spending came in two times stronger than expected, rising 0.8% in April. Core inflation unexpectedly ticked higher to a 4.7% annual pace in April from 4.6% where underlying prices were forecast to remain. Another batch of hot readings on the U.S. economy plays into the hands of Fed hawks who favor higher rates to crush inflation, a dollar-friendly theme.
Dollar on pace for 3rd straight weekly rise
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.
