DXY may near yearly lows ahead of CPI data
Daily Currency Update
CME Futures are currently indicating there is a 95% chance that the US Federal Reserve will raise interest rates by 25 basis points (bps) at the next Federal Open Market Committee (FOMC) meeting later this month. If the Fed decides not to raise rates, markets will likely see the US dollar index (DXY) fall below 101, a yearly low and a major support level for all of 2023. The market is also eyeing key inflation data out of the US tomorrow which should give further clarity about where the Fed will take interest rates.Key Movers
In the Eurozone region, German year-over-year inflation rates rose in June, the first increase in inflation since the beginning of the year. Year-over-year inflation hit 6.4% compared to 6.1% in May. Inflation is proving to be very sticky which means the European Central Bank (ECB) may still need to hike rates further to combat it.The UK unemployment rate has exceeded expectations at 4% versus the expected 3.8% and higher than May’s reading of 3.8%. Jobless claims also jumped to 25,700 in June compared to last month’s dip of -22,500. On the other hand, the UK wage growth is up 7.3% year-over-year, beyond the expected 7.1%. This wage growth could be a possible indicator that the Bank of England (BoE) may not be finished hiking rates.
China’s new bank loans jumped more than expected in June. China extended 3.05 trillion Chinese yuan, exceeding expectations of only 2.34 trillion CNY. This more than doubles the amount extended in May. This depicts China trying to spur economic growth as they recover from COVID losses.
In addition to the US Consumer Price Index (CPI) data release tomorrow, the Bank of Canada (BoC) will make their interest rate announcement tomorrow as well, which is expected to have a big impact on the Canadian dollar. Overall, Canadian CPI has steadily dropped since June of last year. When removing the mortgage cost index, which is up 30% year-over-year, Canadian CPI is currently at 2.5% for the month of May. This falls well within the BoC’s inflation target of 2-3%. Given this fact, it is possible that the BoC may consider inflation to be tamed and leave rates unchanged.
Expected Ranges
- EUR/USD: 1.0977 - 1.1027 ▼
- GBP/USD: 1.2854 - 1.2935 ▲
- AUD/USD: 0.6651 - 0.6695 ▼
- USD/CAD: 1.3245 - 1.329 ▼