The U.S. Dollar is trading in less dominant ranges following a day of optimism across global stocks as well as the sentiment that the pandemic measures will ease, thus fomenting more activity.
Overview
The U.S. economy managed to grow moderately through mid-April, but there are impediments such as the war and inflation from supply-chain woes keeping the future blurry and uncertain.There is an argument though that as the world opens up more, and gets the risk of mask mandates, more productivity will come and also price competition which means we may have reached inflation’s peak. Regardless, it is priced-in by now that the Fed will aggressively address inflation via interest-rate hikes, and in the past four cycles of tightening, the buck has not remained strong but rather lost 4.0% of its value. We may be witnessing that precedent manifesting itself now. We could see some influence on FX flows later today as Fed Chair Jerome Powell meets European Central Bank President Christine Lagarde for a discussion during a special International Monetary Fund event.
What to Watch Today…
- IMF Seminar 1 PM
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EUR
The Euro mounted a bit of a comeback yesterday based on hawkish commentary from ECB officials that indicate a willingness and need to start considering hiking interest rates. Although the ECB has hesitated in the tightening because of fears over economic growth slowing down, ECB member Martins Kazaks gave the OK to start adding at least 25-basis-points to the benchmark rate in July and now there are growing bets of a third of percent by the end of the year.As the conflict in Ukraine remains, the economies of EU nations remain facing downside risks, however, prices must be combated and already there is momentum growing on energy independence as well as defense. The future of the shared currency and the region may not be all bleak.
CAD
The Canadian Dollar is moving around its best levels since the start of the month as speculation grows over the Bank of Canada’s path of tightening monetary policy as inflationary pressures seem to merit it. Yesterday’s Consumer Price Index figures revealed a monthly pace way higher than expected at 1.4% vs. 0.9% estimated, representing the largest month-to-month jump since 1991.
Much like the Fed, the BOC will act according to their announcements without much surprise, but unlike for USD, the idea of higher interest rates could give plenty of reason for CAD to appreciate as oil markets may also benefit it going into a strange but freer summer than the previous two.
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