Global overview
A stable U.S. dollar rebounded from one-year lows as attention shifted to the outlook for American interest rates. The euro eased back from one-year highs, while the UK pound hit a one-week low. Canada’s dollar was little changed, keeping it within arm’s reach of Friday’s two-month high. The dollar index has been on a five-week losing streak, partly as risk assets like Wall Street cheer hopes that the Fed is near the end of its inflation-fighting tightening cycle. Downward pressure on the dollar eased Friday after U.S. retail sales, while weaker than expected in March, were still consistent with solid consumer spending during the first quarter. Signs of resilience in America’s main growth engine, coupled with a Fed official playing up prospects for another rate hike, have helped the dollar find some footing. To be sure, market pricing shows a more than 80% likelihood of the Fed raising rates by 25 basis points in early May. Key focus of the week ahead will be inflation and retail spending reports from Europe and Canada that will test the strength of their respective currencies versus the greenback.
Euro slips from 1-year high
The euro edged down from its highest level in a year against the sturdier U.S. dollar. Caution has also caught up with a rally that’s drive the euro to successive highs against its U.S. counterpart. How firm of a grip the euro has on its gains may be gleaned this week by area numbers on German investor morale Tuesday, euro zone inflation Wednesday, and preliminary PMI business surveys for April on Friday. Outcomes that serve as a reminder of the still slow growing European economy could leave recent euro gains at risk.
Sterling falls to 1-week low
The UK pound notched one-week lows against its steadier U.S. peer. Caution in the run-up to big ticket British economic data has led the pound to surrender some of the strength that’s propelled it to 10-month highs. The main indicator to watch arrives Wednesday and is forecast to show British inflation cooled to a 9.8% annual rate in March from 10.4% in February. An elevated number would run the risk of fueling renewed gains for the pound by intensifying pressure on the Bank of England to raise borrowing costs from 4.25%. However, a cooler than expected reading of inflation could send the pound broadly lower.
C$ looks to data for direction
The Canadian dollar steadied below two-month highs against its U.S. rival with few placing major bets ahead of a slew of domestic indicators this week. Canadian consumer inflation on Tuesday will garner the most attention given its outsized influence over the outlook for monetary policy. Consumer prices are forecast to cool from one-year lows of 5.2% to 4.3% in March. A marked decline in inflation would bolster the Bank of Canada’s forecast of prices moderating to around 3% by the summer. The loonie could find a vulnerability should inflation cool more than expected as it would suggest borrowing rates have peaked at 4.5% .
Dollar index stabilizes above 1-year trough
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.
