CAD remains flat despite strong building permits data

Key Movers

The US Dollar Index (DXY) was on the rise this morning, up by around 0.28% to trade near 105.391. Markets are proceeding cautiously as they look ahead to Wednesday’s rate decision and data releases, all of which will be crucial for gaining economic insights. On Wednesday markets will see the release of the May Consumer Price Index (CPI) report, as well as the June Federal Open Market Committee’s (FOMC) rate decision announcement. The Fed is expected to hold rates steady for the seventh consecutive meeting.

In Eurozone news, the euro is expected to remain firm throughout June, following statements from the European Central Bank (ECB) council indicating that interest rates may not decline in a straight line for the rest of 2024. Three council members—Peter Kazimir, Joachim Nagel, and President Christine Lagarde—have all urged caution as markets anticipate further rate cuts by the ECB. This prudent stance suggested a more measured approach to rate reductions, which should support the euro’s strength against other major currencies.

Turning to the UK, recent data revealed a loss of 140,000 jobs in the last three months. This development temporarily capped gains for the pound. Despite the weak labor market, the UK wage growth remained resilient. Persistently high wage growth in the UK could disrupt the Bank of England’s (BoE) anticipated interest rate cuts this year. Average earnings in the UK grew by 5.9%, revised upward from an initial target of 5.7%. This wage inflation complicates the BoE’s plans, making it likely that the pound will trade sideways as markets grapple with the timing of the first interest rate cut. The ongoing uncertainty about rate cuts will contribute to the pound’s stability without significant directional movement.