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Investors take wait-and-see approach ahead of CPI data

USD - United States Dollar

The US dollar moved lower against a basket of currencies ahead of tomorrow’s much-anticipated inflation data. The US Dollar Index was down 0.22%, trading at 89.88 at the time of writing.

Market participants seem to be taking a wait-and-see approach, looking towards Thursday’s Consumer Price Index report and the rate decision by the European Central Bank to understand if heightened inflationary pressures are indeed transitory or evidence of an emerging trend.

April’s inflation print of 4.2% was the highest since 2008. Economists expect May’s reading to increase to 4.6%. If the number is higher tomorrow, some analysts see this as a reason for the US Federal Reserve to discuss the possibility of tightening monetary policy sooner than later — which could prove to be a boost for USD.

Key Movers

The euro shuffled higher against the dollar ahead of tomorrow’s European Central Bank (ECB) meeting. EURUSD was up 0.35%, climbing over the 1.22 handle to trade at 1.22147 at the time of writing. ECB policymakers are expected to keep rates steady tomorrow, so the focus is on whether the central bank will signal an upcoming slowdown to its bond-buying program and any comments around inflation. The ECB, like the US Federal Reserve, has maintained that near-term inflationary pressures are transitory, and any comments deviating from this stance in tomorrow’s press conference could lift the euro.

The pound has remained firmly trapped in a tight range over the first two days of the week, barely deviating against both the euro and US dollar. GBPUSD, often seen as a barometer of confidence in the UK, has barely wobbled since the start of the week. However, investors’ eyes are fixed firmly on COVID-19 variant cases and any reports as to whether the UK will officially end lockdown on June 21. GBPUSD was up 0.6%, trading at 1.4158 at the time of writing.

The AUD and NZD both tracked slightly higher against USD this morning, after a small correction across commodity currencies on Tuesday. A possible explanation for yesterday’s dip could be sustained inflation fears ahead of the US CPI report. Rising commodity prices have played a part in accelerating an increase in input costs, which has spilled over to consumer prices. A higher than expected inflation reading tomorrow could dampen demand for the AUD.

The Canadian dollar held firm against the dollar after the Bank of Canada announced it is holding its key interest rate at 0.25%, as expected. USDCAD was down 0.32%, trading at 1.2071 at the time of writing.

Expected Ranges

EUR/USD: 1.217 - 1.221 ▲

GBP/USD: 1.412 - 1.418 ▼

AUD/USD: 0.773 - 0.776 ▼

USD/CAD: 1.206 - 1.211 ▼