Global overview
The U.S. dollar slipped to a range of multimonth lows in data- and central bank-driven trade. The greenback fell to two-month lows against the euro and clocked another April 2022 bottom versus the UK pound. Canada’s dollar favored its front foot ahead of an expected interest rate hike today from the country’s central bank. Elsewhere, the kiwi dollar fell after the Reserve Bank of New Zealand left interest rates unchanged at 5.5% and signaled steady policy for the “foreseeable future.” Today’s top event risk comes from the U.S. with the latest reading of consumer inflation. Consumer prices are expected to moderate to a 3.1% annual pace in June, down from 4% in May and a peak last year above 9%. Core inflation is seen cooling to 5% from 5.3%. The market will use today’s inflation data to estimate how many more hikes the Fed has on the table. Inflation that comes in near forecast would tend to be high enough for the Fed to hike rates in two weeks. For the weaker greenback to catch a break, inflation would need to prove a bit hotter, an outcome that would strengthen conviction in the Fed raising rates more than one more time.
Euro rallies to multimonth peaks
The euro notched two-month highs against the greenback which remained on its back foot ahead of new data on American inflation. Markets are betting that U.S. inflation extended a cooling trend in June. Lower inflation, against a backdrop of slower hiring, has markets pulling forward the end of the Fed’s most aggressive tightening cycle in decades. Markets are also taking the view that the ECB may remain on a tightening path longer than the Fed. A more neutral stance of Fed policy would contrast the ECB’s hawkish guidance, divergence that has buoyed the euro this year.
Sterling pushes higher
Sterling extended a bull run that has the UK unit edging closer to the key psychological level of 1.30 that it has kept below since April 2022. Hot UK wage inflation this week has markets pricing in a greater likelihood that the Bank of England may need to follow up its 50 basis point hike in June with another half-point bump on Aug 3. The pound’s near-term prospects have brightened materially thanks to the BOE’s hawkish rate outlook. But higher rates threaten to squeeze the UK economy which ultimately could limit scope for pound appreciation.
Bank of Canada meets; U.S. inflation cools
The loonie held the upper hand against the greenback ahead of an expected rate hike today at 10 a.m. ET from Ottawa. Canada’s resilient economy, which added around 60,000 jobs in June, has markets primed for the Bank of Canada to raise rates to 5% from 4.75%, already the highest in 22 years. Key for the loonie will be the central bank’s new economic projections and forward guidance for lending rates. A door seen as still ajar to higher rates would be C$ positive. The greenback waned after U.S. inflation came in cooler than expected and suggested fewer dollar-positive rate hikes on the Fed’s table. U.S. core inflation cooled more than expected to a 4.8% annual rate in June, below forecasts of 5% and down from 5.3% in May. Inflation is still running high enough for the Fed to hike on July 26, but low enough to cast doubt on multiple increases by year-end.
Dollar tracks moderating inflation lower
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: July 10-14
Have a question? [email protected]
*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.
