Dollar Stabilises Post-Friday Sell-Off; ECB, Canadian Rate Decisions Loom
GBP
GBP/USD remains stable, currently trading at 1.2740 (interbank), and GBP/EUR is at 1.1740 (interbank).
The Pound is finding support as market sentiment grows increasingly optimistic that the BoE will maintain elevated interest rates for an extended period, likely delaying any rate adjustments until after the UK General Election on July 4. Recent indicators suggest a slower-than-anticipated reduction in UK inflation, hinting that continued positive economic data could further bolster Sterling's strength.
The upcoming UK General Election, just a month away, introduces a potential for political uncertainty that typically pressures the currency. However, current polls show the Labour party comfortably ahead, with The Economist’s election model giving them a 93% probability of securing a majority, reducing the usual electoral uncertainty.
Key economic indicators from the UK this week include Manufacturing PMI and Retail Sales, with the latter set to release tomorrow.
Today’s Events (GMT):
09:00 - Manufacturing PMI (May) - Forecast: 51.3
EUR
EUR/USD is hovering within a narrow range, now at 1.0855 (interbank).
Despite higher-than-expected inflation in the Eurozone, the ECB might still proceed with a rate cut this week. However, this could signify a pause in rate reductions come July and possibly a slower pace of cuts thereafter.
Attention for this week is focused on the ECB’s rate decision this Thursday, with the central bank expected to be among the first major central banks to reduce rates. Additionally, ECB President Lagarde’s upcoming press conference will be closely monitored for any hints on future rate adjustments.
Persistent high inflation in the service sector and quicker-than-anticipated economic recovery, coupled with rising wages, complicate the outlook beyond June.
Other important data from the Eurozone this week includes PMI and GDP figures, along with updates from the European Parliament Elections.
Today’s Events (GMT):
09:00 - German Manufacturing PMI (May) - Forecast: 45.4
09:00 - Manufacturing PMI (May) - Forecast: 47.4
USD
The Dollar Index, which compares the U.S. dollar against six major currencies, is lower in today's session, currently at 104.57, following significant declines on Friday.
The dollar declined after the release of April's PCE price index data— the Fed’s preferred inflation measure—which showed a slight easing as anticipated.
The Personal Consumption Expenditures (PCE) Price Index increased by 0.3% monthly, as expected in April. Year-on-year, the PCE held steady at 2.7% in April, consistent with March's data and expectations. The Core PCE Price Index, which omits volatile food and energy costs, climbed 2.8% annually, aligning with market forecasts. This represents the lowest level of core inflation since March 2021.
These figures have triggered some speculation that the Federal Reserve may start reducing interest rates as soon as September.
This week's key event is the eagerly anticipated nonfarm payrolls report due Friday, projected to demonstrate continued strength in the U.S. job market with an estimated 185,000 new jobs, slightly more than last month's figures.
Today’s Events (GMT):
14:45 - Manufacturing PMI (May) - Forecast: 50.9
15:00 - ISM Manufacturing PMI (May) - Forecast: 49.8
CAD
USD/CAD is currently trading at 1.3658 (interbank).
Canadian GDP data last week showed the economy grew at an annualized rate of 1.7%, below expectations of 2.2% and the central bank's projection of 2.8%. The focus now shifts to the BoC’s rate decision this Wednesday, with expectations leaning towards a 25-basis point cut after first-quarter economic growth underperformed.
Governor Tiff Macklem previously indicated that conditions for a rate cut were nearly met, pending further data on slowing inflation.
Meanwhile, oil prices increased slightly this morning after OPEC+ decided to extend its production cuts into 2025. However, rumours of a ceasefire in Gaza have tempered these gains. Brent crude is up 0.3% at $81.33 a barrel, while West Texas Intermediate crude is stable at $77.0 a barrel.
Additional data this week will include the latest Ivey PMI and employment figures set for release on Friday.
No significant events are scheduled for today
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