CAD
The Canadian data calendar takes a breather following Tuesday’s inflation data, with retail sales on Friday the only other release of note for the week. This should keep the CAD trading at the mercy of market cross currents today, though given our view that soft domestic conditions should weigh progressively on the loonie, our bias remains towards USDCAD upside.
USD
The so-called Trump trade was front and centre for markets on Wednesday following an in-depth interview published by Bloomberg covering his views on a number of market-related topics. From an FX perspective though, it was a preference for dollar weakness that stood out. This flew in the face of the market’s recent bias to treat building odds of a Trump presidency as positive for the greenback stemming from higher tariffs, more expansive fiscal spending, and elevated geopolitical risks. The upshot was a 0.5% correction lower for the broad dollar as traders attempted to assess this new balance of forward-looking risks. While we are inclined to see this as temporary, not least given the lack of a credible plan to achieve a weaker dollar, the path to a stronger greenback on a Trump victory in November now looks less clear. Today, the focus will likely remain on the RNC, though initial jobless claims published this afternoon will also be of note for dollar traders. At the same time, the outcome of the Communist Party’s third plenum in China and an ECB meeting later today will also likely catch some attention.
EUR
The ECB’s policy announcement later today should see few surprises for markets. A hold in rates is a done deal, leaving the focus on President Lagarde, and any potential dissents amongst Governing Council voters. On the former, we doubt Lagarde will confirm market speculation around a September rate cut, though she might hint in this direction – an outcome that should leave market pricing and the euro undisturbed. That leaves any potential discord amongst the Governing Council as the most likely source of market entertainment later today, with the balance of dissent likely to offer a steer on the balance of thinking amongst GC members, and the possible path for rates through the remainder of the year.
GBP
Following on from yesterday’s June CPI release, this morning the ONS published its labour market report for May. In contrast to yesterday’s data, however, this morning’s data saw headline figures meet expectations across the board. Average weekly earnings fell from 5.9% to 5.7% 3m/YoY, and from 6.0% to 5.7% once stripping out bonuses. Interestingly though, on a single-month basis, private sector regular pay growth decelerated sharply to 4.9% YoY in May, having printed between 5.8% to 5.9% in other print YTD. As such, the BoE has now had two reports that suggest the economy is too hot to cut rates based on headline figures, but where the details would favour easing policy next month. We think the optics just about tilt risks towards a more conservative approach from the BoE, beginning to ease only in September with the potential for consecutive rate cuts later in the year. But this fine balance is likely to keep markets intently focused on data all UK data releases between now and August 1st, and on any BoE speakers, meaning that sterling should prove notably sensitive to both in the coming weeks.
This content was originally published by our partners at Monex Canada.