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Daily Market Update

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May 24, 2022 | Currency Market Analysis

Global Themes

The retreating U.S. dollar slipped to four-week lows in central bank- and data-driven trade. The recently buoyant euro climbed to four-week highs, while the UK pound and Canadian dollar fell from multiweek peaks. A rebounding euro has injected more two-way trade into currency markets after months of outsized gains for the dollar launched it to two-decade highs. With currencies mostly revolving around expectations for central bank policy, the euro has found a helping hand from 5-year lows as ECB interest rate hikes take shape which in turn is taking meaningful pressure off the single currency. Sterling fell from two-week highs after dismal UK data stoked recession fears. Tepid oil around $110 and weaker risk sentiment weighed on the loonie.


The increasingly popular euro climbed to four-week peaks against the greenback as data and ECB officials continued to make the case for higher interest rates. Surveys from Germany this week have shown surprise resilience which is tempering fears about the war in Ukraine knocking the bloc’s biggest economy into recession. President Christine Lagarde this week has signaled that 8 years of negative ECB interest rates could end as soon as next quarter, a more hawkish outlook that’s materially brightened the euro’s short-run prospects.


A stark reminder of Britain’s weakening economic prospects weighed anew on sterling, pushing it down from two-week highs. Surveys of British manufacturing and services growth both underwhelmed in May, which added to growth worries and suggested further UK rate increases may come at a slower pace. Weaker global stocks put another headwind on the risk-sensitive pound. Already at 13-year highs of 1%, the Bank of England is almost certain to raise rates to at least 1.25% in mid-June, but scope for rate hikes over the second half of the year has diminished.  


The loonie hesitated after climbing to its highest in more than two weeks against the suddenly vulnerable greenback. The loonie largely waxed and waned along with oil markets as local trading resumed after the Victoria Day holiday Monday. Downward pressure on the Canadian dollar has eased, particularly ahead of next week when the Bank of Canada on June is all but certain to deliver a big inflation-fighting rate hike of 50 basis points to 1.50%.

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