Forex News

Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) has steadied near a one‑month low after softer United States (US) Producer Price Index (PPI) and Consumer Price Index (CPI) data weighed on Fed funds pricing. Haddad argues US economic outperformance, the Fed’s commitment to 2% inflation and strong foreign demand for US long‑term securities should keep the Dollar supported, with policy expectations highly sensitive to upcoming inflation data.

Fed stance and data drive Dollar

"USD steadied after sliding to near a one-month low yesterday. Cooler than expected June PPI inflation reinforced the moderation in June CPI inflation, weighing on the Fed funds futures curve and undermining USD."

"We think the dollar’s decline is overdone. US economic outperformance, the Fed's resolve to get inflation back to 2% anchoring hawkish pricing, and strong foreign demand for US long term securities should keep USD supported."

"New York Fed President John Williams and Fed Governor Lisa Cook delivered speeches yesterday that offered fresh insights into how policymakers are assessing the inflation outlook. The key takeaway is that the FOMC is united on holding rates for now, but less united on how durable the inflation threat is, implying policy rate expectations are likely to remain particularly sensitive to incoming inflation data."

"The July Fed Beige book also pointed to a mixed inflation outlook. Contacts in some Districts expect “inflation to continue at its current pace, while contacts in others expected inflation to slow, in part due to falling fuel prices.”"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

TD Securities notes the Bank of Canada (BoC) kept its policy rate at 2.25% and softened guidance by removing references to both rate-cut risks and consecutive hikes. Markets interpreted the statement as mildly dovish, but prior moves limited volatility. The analysts judge a balanced BoC outlook offers little immediate support to the Canadian Dollar (CAD), though improving data could later help USD/CAD move lower.

Balanced BoC seen limiting CAD gains

"The Bank of Canada held rates at 2.25% and watered down its guidance by removing the reference to both the risk of rate cuts and consecutive hikes going forward."

"Markets took the statement mildly dovishly, but yesterday's move tempered any large swings."

"A balanced BoC outlook does not do much for the CAD."

"Stabilization in Canadian data should allow USD/CAD to eventually retrace below 1.40."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Rabobank’s Bas van Geffen expects the ECB to keep the deposit rate at 2.25% in July, judging a hike as a tail risk that would require a much stronger energy shock. The re-escalation of the Iran war shifts risks toward higher inflation, but policymakers are seen preferring to wait for September, when Rabobank still forecasts one additional hike.

Upside risks but July hike unlikely

"New uncertainty about the situation in the Middle East has revived rate hike expectations for the second half of the year. A lot can still happen in the week until the policy meeting, but we believe that the Governing Council prefers to wait for September. The chance of a hike next week is nonzero, but this would require a substantially stronger energy shock in the coming days."

"The re-escalation of the Iran war gives new impetus to upside inflation risks. This may embolden some of the hawks to push for a follow-up hike, but we believe most policymakers are probably not in a hurry to hike again."

"We acknowledge that there is a significant tail risk of a rate hike next week, but we still prefer to fade these odds. Some of the more hawkish policymakers may contend that the escalation in the Middle East warrants another rate hike."

"So, if anything, we would argue that the re-escalation in the Middle East adds upside risks to our projections for policy rates in 2026Q4."

"We still have a single follow-up rate hike pencilled in for September. That may be insufficient if energy price pressures worsen, but this is a risk scenario and not our baseline."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)