Global overview
The U.S. dollar started June just below multimonth highs as risk sentiment brightened and the odds of an imminent Fed rate hike receded. Consequently, the euro edged above 10-week lows while the British and Canadian currencies notched one-week peaks. The mood on Wall Street improved early Thursday after the U.S. House approved the deal to suspend the debt ceiling over the next two years. The tentative improvement in risk sentiment tempered safety flows into the greenback, the world’s most liquid currency. The dollar’s recent revival lost thrust after remarks this week from senior Fed officials hinted that the central bank may hold off on raising interest rates in mid-June. The odds of the Fed raising rates by 25 basis points from roughly 5.1% on June 14 fell to about 33% from 70% earlier Wednesday, causing the dollar to surrender some ground. The dollar continues to garner solid underpinning from mounting signs of a resilient U.S. economy that back the view that the Fed isn’t done raising borrowing rates. Next to sway the fluid U.S. rate debate will be America’s May jobs report on Friday and the next consumer inflation survey which lands a day before the next Fed decision.
Pressure eases on euro
Pressure on the euro eased thanks mostly to the greenback giving back some ground amid markedly reduced expectations for the Fed to raise lending rates as soon as this month. The euro’s fundamental shape remained fragile after data showed a bigger than expected slowdown in euro area inflation to a 6.1% annual rate in May from 7% in April. While the latest inflation reading is still historically high, it marked a significant improvement from peak levels last year above 10%. Coupled with a contracting German economy, the latest inflation figures will reduce pressure on the ECB to raise interest rates from 3.25%.
Sterling jumps to 1-week highs
The UK pound kicked off June on its front foot as the greenback pared recent gains and global market sentiment improved. It also helped that UK manufacturing in May was upwardly revised to show a slightly slower pace of contraction. GBP/USD fell 1% in May when it snapped a two-month winning streak. The pound still retains a fair amount of underlying bullishness on the view that U.S. interest rates over the coming year are forecast to fall at a faster pace than the UK, suggesting domestic rates may ultimately peak higher than in the U.S.
BOC rate hike risk rises, boosting C$
Notching one-week highs, Canada’s loonie got off to a quick start to June after bullish domestic growth data this week strengthened the case for the Bank of Canada to resume interest rate hikes. A quarter-point rate hike next week is seen as a closer call after Canada’s economy outpaced forecasts with 3.1% annualized growth over the first quarter, topping forecasts of 2.5%. The odds of Ottawa raising rates by 25 basis points from 4.50% improved to roughly 40% from less than 30% before Wednesday’s growth data.
Dollar subdued after outperforming in May
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: May 29-Jun 2
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.
