USD edges lower ahead of Federal Reserve rate decision

Key Movers

The EUR/USD pair remained stable this morning as markets wait for the Fed’s rate decision. The pair dipped to the mid-1.06 range this morning before returning to its opening level of around 1.07. With no significant data releases or European Central Bank (ECB) commentary expected out of the Eurozone today, the path for this pair will hinge on the Fed announcement.

The GBP also remained unchanged in today’s session so far, mirroring other major currencies. UK housing data showed a slightly greater-than-anticipated decline in house prices, down 0.4% in April based on Nationwide’s index. Meanwhile, the UK Manufacturing Purchasing Manager’s Index (PMI) data trended upwards at 49.1 from 48.7.

The JPY continued to be undermined by the divergent Bank of Japan and Fed policy expectations. As the Fed is expected to keep rates higher for longer, the USD will likely rise lending support to the USD/JPY pair. The main driver of the JPY weakness was the interest rate differential between Japan and U.S which is expected to remain wide for some time.

The CAD weakened slightly amid soft Gross Domestic Product (GDP) numbers but maintained its position in the upper 1.37 range overnight. Statistics Canada reported a 0.2% GDP rise in February, less than analysts’ estimates. Rate cuts don’t seem imminent even with market reactions slightly increasing the likelihood of rate cuts at the June Bank of Canada (BoC) meeting. BOC Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers are set to appear at a Senate Panel today and at a House of Commons Panel tomorrow. Macklem’s statement on Canada’s economic health and appetite for future rate cuts is set to be released this evening.