CAD
While the rest of the G10 complex traded on the front foot yesterday, the loonie was a notable laggard. Not only did softer than expected US price growth, and the prospect of looser Fed policy, fail to offer much upside impetus for USDCAD, but the slide in US equities also offered a less than constructive backdrop for the loonie to trade against. All told this saw USDCAD little changed on the day, a dynamic we expect to hold through to the end of the week given a distinct lack of domestic drivers to stimulate any loonie price action today.
USD
Unsurprisingly, it was US CPI that caught traders’ attention yesterday. Headline price fell by -0.1% MoM, while core price growth dropped to just 0.1%, and 0.065% on an unrounded basis. Moreover, the June CPI report was notable not just for easing headline figures, but also for the details, with softening price pressures broad based across components. Naturally, this adds yet more support for the Fed to begin cutting rates. The market implied odds of a September rate cut now stand at 90%, with traders now expecting 2.2 rate cuts for the second half of the year in total. That said, we think the FX reaction to yesterday’s print is instructive too. Having initially softened close to 1%, the broad dollar subsequently retraced higher to finish down just shy of 0.5%. As we have noted previously, a soft landing in the US should be dollar negative, a recession though, would likely see a dollar haven bid. And whilst yesterday’s data is still in the soft-landing camp, the US economic slowdown looks increasingly concerning from some angles, leaving traders hesitant to build significant short dollar positions. Today PPI is likely to be in focus for FX traders, as are equity markets, with yesterday seeing the Magnificent Seven tech stocks sell-off, even as equities rallied more broadly. Whether or not this was idiosyncratic is likely to keep traders one their toes today, with the US equity open set to be closely watched.
JPY
While US CPI was the big data point for markets yesterday, the Japanese yen stole the limelight from an FX perspective. USDJPY finished down almost 2% as the MoF seemingly piggybacked on the initial dollar selloff post-CPI to deliver yet another rate check to markets. Granted, this is yet to be confirmed by Japanese officials, though the lack of a denial looks instructive to us. Even so, we doubt this ambiguity will hold for long, with high-frequency data from the BOJ, released around 10:00 BST, likely to confirm that yesterday’s USDJPY move was indeed another round of FX intervention.
EUR
EURUSD finished Thursday’s session up 0.35%, delivering a middling performance on the back of yesterday’s US CPI miss, reflecting as we see it the continued performance drag from French political risk. Even so, while this is a dynamic that will continue to play out in the background, we suspect that many European FX traders will be looking at price action on crosses this morning, with the Swedish krona the standout mover so far today. Like the counterpart US print, Swedish inflation also delivered a downside surprise in June, with headline prices falling by -0.1% last month. This leaves the CPIF measure targeted by the Riksbank tracking at just 1.3% YoY, below pre-release expectations for a 1.6% print and well down on the previous 2.3% reading. Even after adjusting for energy costs, Swedish inflation continues to look soft – CPIF ex-energy fell from 3.0% YoY to 2.3% in June. Taken as a whole, we think this all but guarantees a rate cut from the Riksbank next month, with the balance of risks looking increasingly tilted towards Swedish policymakers easing rates faster than once per quarter though the second half of the year, a possibility that has seen EURSEK climb 0.3% in early trading.
GBP
Yesterday’s 0.5% rally against the dollar saw sterling place second to only the Japanese yen on the G10 leaderboard. Indeed, a combination of better-than-expected UK growth and a soft US CPI print conspired to see GBPUSD hit highs not seen since July 2023. With little in the calendar for today, the pound looks likely to stabilise around these highs heading into the weekend too, before next CPI and labour market reports next week bring with them some notable domestic catalysts for sterling price action, with 1.30 potentially in range for GBPUSD if yet more strong domestic outturns are realised.
This content was originally published by our partners at Monex Canada.