Dollar Declines Slightly as Middle-Eastern Tensions Ease
GBP
GBP/USD is rebounding marginally and is presently trading at 1.2378 (interbank), close or at its lowest level since November 14 recorded last week. GBP/EUR has also slipped to 1.1600 (interbank).
Last week, BoE governor Bailey alluded to the likelihood of this figure potentially dipping temporarily to/below the BoE’s 2% inflation target.
Bailey’s remarks hinted that the BoE may prefer to align its policies more closely with the ECB in the near term, rather than with the Fed, which is clearly indicating a prolonged period of higher rates.
Employment and activity data also displayed weakness last week, while the BoE offset the upside surprise in March CPI with its dovish statements.
Currently, money markets are pricing in an initial 25 bps rate cut in August, with a second cut expected by year-end.
The focus this week is on the latest PMI figures.
Today’s Events (GMT):
11:00 - CBI Industrial Trends Orders (Apr) Forecast: -15
EUR
EUR/USD has inched higher and is currently trading at 1.1661 (interbank).
There has been a flurry of ECB rhetoric in recent days, converging around the possibility of a cut in June. French central bank chief Francois Villeroy de Galhau stated on Sunday that "absent surprises, there is no need to wait much longer" for policy easing, even in the face of risks from the Middle East. However, after June, reductions should occur at a "pragmatic pace." Pierre Wunsch and Madis Muller also separately advocated for multiple cuts this year.
These comments illustrate the division emerging within the ECB regarding the pace of easing.
This week, investors will monitor the preliminary Eurozone HCOB PMI data for April, along with several speeches from ECB members.
Today’s Events (GMT):
11:00 - Eurogroup Meetings
16:30 - ECB President Lagarde Speaks
USD
The Dollar Index, which measures the U.S. dollar against a basket of six major currencies, is presently at 106.13, remaining close to over five-month highs reached earlier this month.
Diminishing expectations of a June rate cut bolstered the dollar, particularly after robust U.S. inflation readings and hawkish commentary from top Fed officials.
This week's focus is on further clues regarding U.S. monetary policy, particularly from PCE price index data, which is the Fed’s preferred inflation gauge. The reading is due on Friday and is expected to reaffirm that U.S. inflation remained firm in March.
Additionally, more insights into the U.S. economy are expected this week, with purchasing managers index data for April providing further clarity on business activity.
No significant events are scheduled for today.
CAD
USD/CAD is currently trading at 1.3723 (interbank) in this morning’s trading session.
Oil prices declined by over 1% on Monday, as market focus shifted to fundamentals after Israel and Iran downplayed the risk of an escalation of hostilities following Israel's apparently minor strike on Iran. Crude Oil has fallen to $80.81 per barrel, while West Texas Intermediate (WTI) has dropped to $82.17 a barrel.
The latest data from Canada indicates a softening inflationary trend, underscoring the divergent monetary policy outlook between the BoC and the Fed.
Interest rates in Canada are still expected to decrease in the summer amid declining inflation and slower growth.
The markets will closely monitor the latest Retail Sales data from Canada due on Wednesday. Furthermore, today will see the latest RMPI and New House Pricing index published.
Today’s Events (GMT):
13:30 - New Housing Price Index (Mar) Forecast: 0.1%
13:30 - RMPI (Mar) Forecast: 2.9%
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