US dollar rises slightly ahead of data releases
Daily Currency Update
The US Dollar Index (DXY) rose slightly by 0.19% again this morning following yesterday’s modest increases. The DXY sat near the 104.50 level this morning as markets continued to digest President Joe Biden’s decision to end his re-election campaign. The US Federal Reserve Chair Jerome Powell and his colleagues noted that they are becoming more hopeful about the progress on inflation in recent months. New York Fed President John Williams and Governor Christopher Waller indicated that the central bank is getting closer to where it wants to be in terms of rate cuts. Traders in the Fed Funds Futures markets have fully priced in rate cuts in September, with at least two quarter-point cuts before the end of 2024. In data news, Purchasing Manager’s Index (PMI) data is set to be released tomorrow, with a slight increase expected from 52.8 to 53. On Thursday, the second-quarter GDP data will be released, followed by the crucial inflation indicator via the Personal Consumption Expenditure (PCE) data, on Friday.Key Movers
In Europe, the EUR/USD pair dipped by around -0.39% so far today to the 1.0848 level. European Central Bank (ECB) council member Luis de Guindos stated that “inflation data is practically in line with our projections.” He added that it is prudent to wait until September to set the interest rate policy due to the high levels of uncertainty and emphasized the need to closely monitor wage inflation developments. However, he noted that geopolitical risks, which continued to increase globally, are a greater concern than inflationary pressures.The pound held steady yesterday as markets anticipated the data set to be released tomorrow. Markets expect the data to show a slight increase from 52.1 last month to 52.5, and this has largely been priced in. If the number exceeds expectations, the pound could attract renewed buying interest as markets might further discount the possibility of rates remaining higher for longer in the UK.
The Canadian dollar weakened to a five-week low against its US counterpart on Monday as markets raised their bearish bets on the currency ahead of a potential interest rate cut this week by the Bank of Canada (BoC). The BoC is anticipated to cut rates once again by 25 basis points (bps) to 4.5% as inflation eases. Markets have priced in nearly 93% odds of BoC rate cuts on Wednesday and a total of 75 bps cut this year. "A rate cut is likely to be delivered," said Taylor Schleich, rates strategist at the National Bank of Canada. Meanwhile, oil demand concerns and easing geopolitical fears might drag crude oil prices lower and undermine the commodity-linked Canadian Dollar (CAD) in the near term. West Texas Intermediate (WTI) crude oil was down by around -1.4% this morning to $77.30 per barrel. The recent slump in oil prices, to over a one-month low, has been seen as a key factor undermining the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair.
Expected Ranges
- EUR/USD: 1.08460 - 1.08966 ▼
- GBP/USD: 1.28878 - 1.29347 ▼
- AUD/USD: 0.66116 - 0.66458 ▼
- USD/CAD: 1.37528 - 0.37737 ▲