Global overview
America’s currency emerged from the long U.S. holiday weekend in steady shape after its tumble last week to one-month lows. The euro and sterling edged below last week’s one-month and one-year highs, respectively, while the Canadian dollar steadied near recent nine-month peaks. Caution reigned ahead of another eventful week for markets. Federal Reserve Chair Jerome Powell will offer fresh monetary policy testimony on Capitol Hill on Wednesday and Thursday. The UK’s central bank is in focus as the Bank of England is all but certain to hike rates Thursday by at least 25 basis points from 4.50%, already the highest level since 2008. The dollar was knocked lower last week after the Fed left borrowing rates unchanged at about 5.1% which snapped a streak of 10 straight hikes that boosted lending rates by a massive 5 percentage points in a little over a year. The Fed’s steady hand contrasted another hike by the ECB that lifted area rates to 22-year highs of 3.50%. For the dollar to stabilize this week, remarks from Mr. Powell would need to bolster market conviction in the Fed’s forecast of more quarter-point rate hikes to come by year-end.
Euro hovers near 5-week highs
The euro eased below five-week highs against the U.S. dollar as tepid risk sentiment lent support to safer bets. The euro climbed nearly 2 cents last week to mid-May highs after the ECB raised rates to 3.50% from 3.25%, and raised the curtain on another increase in July. The ECB’s hawkish tone suggested that European borrowing rates may not reach peak levels until the fall, a later timeline than markets had expected, catalyzing a bullish repricing that boosted the euro.
UK pound slips below April 2022 peak
The acrobatic UK pound lost ground on profit-taking ahead of an eventful week that will shine a bright spotlight on both British inflation and interest rates. The UK’s chronic bout of inflation suggests London may need to outlast both Washington and Frankfurt in hiking interest rates which has been positive for sterling’s yield outlook. Moreover, a Bank of England rate hike this week would erode the yield advantage of dollar-based assets. Ahead of the BOE’s Thursday rate decision at 7 a.m. ET, area inflation Wednesday is forecast to moderate to 8.4% from 8.7%.
Loonie steadies ahead of data
A little changed Canadian dollar was camped near mid-September 2022 peaks against its U.S. rival. The greenback has lost meaningful altitude of late after the U.S. and Canadian central banks this month traded places, with the former moving to the sidelines where the latter be situated for months. The key fundamental focus for the loonie this week will be a report on Canadian consumer spending Wednesday, with retail sales forecast to rise 0.2% in April after spending plunged 1.4% in March.
Dollar generally favors lower end of ranges
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Jun 19-23
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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.
