Global overview
The euro led major currencies higher Tuesday following hawkish remarks from European central bankers. While the euro moved toward recent peaks near 1.10, currencies from the U.S., UK and Canada were little changed. Speaking at the European Central Bank’s annual summit in Sintra, Portugal, Christine Lagarde reiterated the central bank wasn’t done raising rates from already 22-year highs of 3.50%, given the region’s stubbornly elevated level of inflation. Moreover, Ms. Lagarde vowed to maintain higher rates for a long as necessary to bring inflation back to the ECB’s 2% goal. Risk sentiment improved, giving the euro’s bounce added traction, an environment that tempered demand for safe bets like the greenback. The improvement in risk sentiment saw the greenback notch new seven-month highs versus the yen. The yen’s latest leg lower prompted Japan’s finance minister to warn that Tokyo would “respond appropriately” to “excessive” yen weakness. Near 144, USD/JPY appears to be within striking distance of Tokyo’s line in the sand to intervene in FX markets to halt the yen’s bleeding. On tap today are reports on Canadian consumer inflation and U.S. consumer confidence.
Euro buoyed by ECB’s hawkish talk
The euro added to its June advance after hawkish talk from area central bankers played up the theme of policy divergence. EUR/USD has appreciated by more than 2% in June after the pair ended May under 1.07. Upside for the euro has come in fits and starts, given uncertainties related to the bloc’s weaker economic outlook. Still, the euro tends to benefit from expectations for the ECB to raise rates more than the Fed over the latter half of the year, an outlook that would help to narrow America’s favorable interest rate advantage.
Sterling maintains sideways trading pattern
The UK pound steadied with upside capped by domestic growth concerns. The market has turned a bit hot and cold on sterling after last week’s aggressive 50 basis point rate hike by the Bank of England that lifted rates to 5%, the highest level in 15 years. While higher rates are the UK’s ticket to lower inflation, they are also a recipe to slow an already fragile economy. Nevertheless, GBP/USD has appreciated more than 2% this month after ending May below 1.25, thanks to the pound’s growing yield attraction.
C$ stays hot despite cooler domestic inflation
Canada’s dollar eased off nine-month highs after cooler domestic inflation suggested area interest rates may be closer to topping out. Canadian consumer prices cooled to a 3.4% annual rate in May, a full percentage point lower than April’s 4.4% and down sharply from peak levels last year above 8%. With inflation still above the Bank of Canada’s 2% goal, today’s data keeps the door open for policymakers to raise rates again as soon as July. The cooling trend may cast doubt on the need to raise rates above 5%, a less hawkish view that coaxed the loonie to session lows.
USD/JPY clocks 7-month highs near 144
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Jun 26-30
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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.
