Dollar Edges Higher With Focus on Fed and BoE Rate Decisions
GBP
GBP/USD continues its downward trend, currently trading at 1.2862 (interbank). Similarly, GBP/EUR has dipped to 1.1829 (interbank).
This week, volatility is anticipated as markets keep an eye on the Bank of England's interest rate decision on Thursday. There's a 50% probability of a quarter-point rate cut, though opinions are divided on whether this will occur now or at the next meeting in September.
The UK's base rate has been maintained at 5.25% since last August, a measure to curb inflation. With inflation meeting the Bank’s 2% target for the past two months, there's optimism for potential rate cuts to alleviate borrower stress.
UK's new Chancellor, Rachel Reeves, will deliver a statement to Parliament early this week, addressing the state of public finances. She is expected to disclose a £20bn deficit and outline immediate spending cuts, setting the stage for tax increases in an October budget.
No significant events are scheduled for today
EUR
EUR/USD is presently trading at 1.0842 (interbank).
On Wednesday, the Eurozone will release its latest inflation figures, which will help assess if the market's expectations for two additional ECB rate cuts this year are justified.
Some ECB policymakers are at ease with the speculation of further rate reductions, citing a bleak economic outlook and confidence that inflation will align with the 2% target next year.
German Finance Minister Christian Lindner has acknowledged weaker demand in the Eurozone's largest economy and has announced tax relief measures for businesses and households to stimulate spending and investment.
Ahead of the Eurozone inflation report, investors are closely watching the preliminary Q2 GDP and inflation data for Germany and Spain, scheduled for release tomorrow.
No significant events are scheduled for today
USD
The Dollar Index, which tracks the U.S. dollar against a basket of six major currencies, has declined by 0.1% to 104.27.
The U.S. dollar initially declined following the latest PCE price index data— the Federal Reserve's preferred measure of inflation— which indicated some easing on Friday. This data increased speculation that the Fed might be nearing a decision to start cutting rates by September.
This week, the focus is on Wednesday’s Federal Reserve meeting, where it's anticipated that interest rates will remain unchanged. With recent signs of easing inflation and dovish comments from officials, traders are closely monitoring any indications from the central bank regarding the timing of potential rate cuts.
The general expectation is for a 25-basis point reduction in September.
No significant events are scheduled for today
CAD
USD/CAD is currently trading at 1.3840 (interbank).
Last week, the BoC cut its benchmark interest rate by 25 basis points to 4.50%, marking the second consecutive monthly reduction. The focus has shifted towards stimulating economic growth as inflation concerns lessen. Investors are anticipating another rate cut in September, with a total reduction of 44 basis points expected by the end of the year.
This could provide relief to heavily indebted Canadian households, although it may come at the expense of a weaker Canadian dollar.
Oil prices remain relatively stable, with Brent crude edging up 0.2% to $81.15 per barrel, while West Texas Intermediate (WTI) crude dipped 0.1% to $77.11 per barrel. This stability follows a missile strike in an Israel-occupied territory, raising concerns about a broader conflict involving the Lebanese group Hezbollah.
It will be a while before the next Canadian inflation data is released in the latter half of August, with only mid-tier economic data available until then.
The key event this week will be the release of the latest Canadian Gross Domestic Product (GDP) data, scheduled for tomorrow.
No significant events are scheduled for today
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