Global overview
The U.S. dollar favored recent lows in holiday-thinned trade with UK markets closed Monday. The euro and sterling firmed with the latter climbing to new 11-month highs. Stronger oil above $70 aided the commodity-backed Canadian dollar’s rise to three-week peaks. The greenback remains hamstrung by expectations for the Federal Reserve to lower interest rates by year-end. The Fed last week raised rates by 25 basis points to just above 5%, the highest level in 16 years. Still, markets are pricing in the risk of the Fed having to cut rates as soon as the third quarter amid expectations for U.S. growth to lose momentum over coming months. The Fed’s steady to lower rate outlook contrasts the picture abroad with central banks in Europe expected to remain on a higher rate path. The Bank of England will dominate the spotlight with policymakers forecast to raise rates by at least a quarter-point on May 11. Key for sterling will be whether the BOE’s tone is commensurate with forecasts for more than one more rate hike to come with UK inflation elevated above 10%. The dollar will look for direction from a midweek reading on U.S. consumer prices and data today on U.S. bank loan activity.
Euro shrugs off downbeat data
A subdued U.S. dollar allowed the euro to edge up toward recent 13-month peaks. The euro’s gain was modest amid holiday-subdued activity with UK markets closed and after data painted a downbeat picture of German factory growth. Industrial output in Europe’s largest economy plunged 3.4% in March which outpaced expectations for a 1.3% decline. It helped at the margin that factory activity in February enjoyed a one-tick up grade to 2.1%. The euro continues to find a sturdy pillar of support in expectations for the ECB to raise rates further over coming months.
Stronger UK pound faces late week event risks
No holiday slowdown for sterling as the UK unit notched a new peak, its highest in nearly a year, despite UK markets enjoying an extended weekend for a banking holiday. The pound is holding firm ahead of Thursday’s Bank of England meeting at which the central bank is expected to raise rates for a 12th straight meeting to 4.50% from 4.25%. Key for sterling will be whether BOE officials hint that area lending rates could peak around 5% before pausing. UK growth data Friday will also hint at the extent to which lending rates could rise. Forecasts call for first quarter growth to match the fourth quarter’s subdued 0.1% quarterly rise.
USD/CAD slides to 3-week lows
A weaker U.S. dollar and stronger crude oil lifted Canada’s commodity-influenced currency to more than three-week peaks. The loonie’s improved altitude also traces back to Friday’s strong employment report that showed Canada’s economy added more than 40,000 jobs in April, an amount two times stronger than expected. Compelling evidence of a resilient economy kept a high bar in place for the Bank of Canada to lower interest rates from 4.50% by year-end. Oil rose to $73, the highest level in nearly a week.
Dollar subdued near lows
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: May 8-12
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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.
