Global Themes

A subdued U.S. dollar descended from multimonth peaks as its rapid rally over recent weeks cooled. The buck edged down from multimonth highs against the euro, sterling and Australian dollar and fell to its lowest in 3 weeks against the Canadian dollar. The market found a catalyst to book profit on the buck's nearly 5% surge since mid-April to 2018 highs after data showed a modest rise in U.S. inflation. Consequently, the Fed seems less inclined to step up the pace of interest rate hikes, a view that checked the dollar's advance. The spotlight today will be on Canada's jobs report. Low unemployment below 6% would bode well for the loonie. 

GBP

Not much of a hangover so far for the U.K. pound a day after the Bank of England left lending rates unchanged at 0.5% and revised lower its forecasts for growth and inflation. A retreat in the U.S. dollar offered a chance for the pound to snap its 3-week losing streak. Sterling would need to see better U.K. data to help halt a slide that has shaved more than 9 cents off its value. Better data would also help to make the case for the BOE to raise rates later this year. That puts the focus on unemployment, due out Tuesday. 

EUR

The euro rose above 2018 lows but was still at risk of logging its fourth decline in as many weeks against the greenback. The euro is catching a breather after data showing the lid on U.S. inflation took some air out of the dollar's sails and suggested the Fed would be less inclined to raise rates at a faster clip this year. The coming week features important European data on German investor morale, quarterly growth and inflation, numbers that should speak to the outlook for ECB policy.

CAD

A surprise contraction in Canadian hiring last month caused the loonie to move below 3-week highs. Canada unexpectedly shed 1,100 jobs in April versus forecasts of a gain of 17,400. Unemployment maintained a 4-decade low of 5.8%. The overall quality of the report was decent, however, as all the hiring came from more meaningful full time positions and wage growth rose. The loonie caught a major break this week when USDCAD failed to breach a key psychological level while America's decision to withdraw from the Iran nuclear deal pushed oil prices to 3-year highs above $71, buoying energy-related currencies.

USD

The dollar faded from 2018 highs after more evidence of inflation coming off a boil. Import prices rose just 0.3% in April, below forecasts of 0.5%. The data followed cooler than expected readings on consumer prices and wage growth that dashed expectations for the Fed to shift to a faster pace of rate increases. The dollar seems fatigued after rallying nearly 5% since mid-April. A batch of U.S. data next week on retail sales and industrial production, coupled with a host of public remarks from Fed officials, will shape the road ahead for the U.S. currency.

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