Weak oil demand hinders Loonie movement

Key Movers

The US dollar index (DXY) slipped below 102.5 today but is staying close to its highest level in a month. This has been largely driven by concerns about the US banking sector and economic uncertainties in China, which is increasing the demand for the currency. Moody's, an organization that delivers independent opinions on credit risk, downgraded the credit rating of ten small to mid-sized US banks and cautioned that other major US banks might also face downgrades. Consumer prices experienced their first decline in over two years, raising fears of deflation. Investors are now focusing on upcoming US inflation data for insights into the economic and monetary policy outlook.

EUR/USD maintained a positive position of just under 1.100. With the market adopting a cautious approach in anticipation of the eagerly awaited US inflation data set to be released on Thursday, the pair is finding any further advancement challenging at this time. Regarding monetary policy, financial markets are projecting that the European Central Bank (ECB) might increase rates later this year and maintain elevated levels for an extended period. This projection comes after data revealed that core inflation in the Eurozone did not decrease in July as expected.

The sterling encountered renewed selling pressure, shifting into negative territory below 1.2750 against the US dollar. This week, attention will be on the UK manufacturing sector's performance in June and initial GDP figures for the April-June quarter are also hotly anticipated, given the prevailing restrictive policy environment. Market participants are speculating whether the economy can steer clear of a recession. Additionally, statements from Bank of England (BoE) Chief Economist Huw Pill and the National Institute of Economic & Social Research suggest that UK Prime Minister Rishi Sunak is on track to deliver on his commitment to bring down inflation to 5% by the close of 2023.