CAD
Despite the focus on US inflation data this afternoon, loonie traders will also have a summary of deliberations to contend with today, due to be released at 18:30 GMT. Indeed, this release will likely be parsed in some detail by markets. Recent BoC commentary has seen policymakers indicate a preference for bringing their easing cycle to an end, a view we continue to see as at odds with underlying economic fundamentals and the adverse backdrop posed by potential Trump tariffs. We suspect that the BoC’s internal discussions have likely given more time to this backdrop than admitted to at last month’s policy meeting. A hint in this direction should help USDCAD to rally today, with the pair currently trading around 1.43.
USD
Yesterday’s semi-annual testimony to Congress saw few revelations from Fed Chair Powell as expected. Indeed, given that this was the first such appearance of the new congress, the session was dominated by political posturing with little meaningful information on offer for markets. The hints that did land, however, skewed hawkish in our view. Specifically, Powell characterised the labour market as “very strong”, having previously suggested that conditions were “solid”, a noteworthy change in tone after the robust details in January’s job report. Even so, this was not enough to underpin the dollar, with the DXY index slipping to 107.9. That leaves the greenback scanning cheap in our view with January CPI data coming up this afternoon. Markets expect to see core inflation print at 0.3% MoM, and 3.1% YoY – this latter reading had been predicted to come in at 3.2% only a few days ago. With that in mind, we see risks skewed in favour of a marginal upside beat on the annual print, an outcome that should help the dollar retrace some recent losses if realised later today.
EUR
Another quiet day on the data front should keep US inflation at the forefront of EURUSD traders’ minds this afternoon, and given our view on the likely balance of risks ahead of this release, we are looking for some downside for the pair. Beyond that, a speech by the ECB’s Nagel 1t 17:00 GMT is the only other event of note. That said, given the focus is on the neutral rate of interest, a topic that has been covered in some detail by other ECB speakers recently, we doubt Nagel’s intervention will be hugely informative for markets.
GBP
Tuesday saw cable post a robust performance, rallying 0.6%. In part, this reflected broader dollar dynamics, but domestic developments were also sterling-supportive. Specifically, the BoE’s Mann did much to clarify her views on the economy after her vote for a 50bp rate cut last week caught markets off guard. As we noted at the time, we thought this represented a preference for a one-time re-set lower in UK rates and was not indicative of a more sustained dovish conversion. With Mann largely confirming this view, and comments from BoE Governor Bailey arguably skewing hawkish at the margin too, traders pared back Bank Rate easing bets, now projecting just 60bps of easing through the remainder of the year.
This content was originally published by our partners at Monex Canada.