Weak US data puts downward pressure on USD/CAD

Key Movers

The US dollar index (DXY) dropped to a two-week low of 102.936 due to weaker-than-anticipated US economic data. This has led to increased speculation that the Federal Reserve might halt interest rate increases. These developments follow recent data indicating that consumer confidence in the US plummeted the most in two years during August. This decline can be attributed to negative perceptions of the job market, rising borrowing costs, and ongoing inflation. Further data revealed that in the second quarter of 2023, the growth rate of the US economy reached an annualized 2.1%, which is slightly lower than the initial estimate of 2.4%. This is also a slight improvement from the first quarter's expansion of 2.0%.

Surpassing the 1.09 threshold, the euro gained strength marking its highest point since August 11th. This surge was prompted by data indicating sustained inflationary pressures in Germany and Spain, causing investors to increase their expectations of a forthcoming rate hike by the European Central Bank (ECB). Concurrently, underwhelming US employment and second quarter GDP data exerted downward pressure on the USD. Investors are now closely watching for the upcoming release of Eurozone inflation data on Thursday as well as the US jobs report on Friday, seeking additional insights into potential monetary policy.

Surpassing the 1.27 mark, the pound also showed strength, marking its strongest position since August 24th. This momentum is attributed to market sentiment, which anticipates the Bank of England (BoE) will likely implement two more rate hikes of 25 basis points within the year. Additionally, Ben Broadbent, Deputy Governor of the BoE, indicated that the UK might need to maintain elevated interest rates to address persistent inflationary pressures. Nevertheless, the release of less robust economic data has led to speculation that interest rates could potentially peak at a lower level than initially projected.