Dollar Hits New Highs as Euro Softens

A weaker euro saw the dollar hit new highs yesterday. Data highlights include the second estimate of Q1 US GDP, while the Bank of Canada meets.

Previous Day's Market Highlights

Political uncertainty kept the euro under pressure yesterday after Italy’s president blocked the formation of a Eurosceptic government, causing markets to fret that fresh elections could increase the populists’ majority. The euro fell to its lowest levels against the dollar since November, a decline of around 8% from the three-year highs seen in February. The dollar also gained against the pound. Sterling-dollar’s lows just above the 1.32 level also marked around an 8% decline since mid-April, when the rate hit its highest levels since the referendum.
 
In addition to the softer euro, Italian bonds were sold off, pushing 10-year yields to a high above 3.3%, while risk-off sentiment also weighed on equities.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1461 1.1478 1.1302 1.53%
GBP/USD 1.3273 1.3667 1.3204 3.39%
EUR/USD 1.1579 1.2032 1.1510 4.34%
GBP/AUD 1.7685 1.8241 1.7543 3.83%
GBP/NZD 1.9180 1.9702 1.9085 3.13%
GBP/CAD 1.7285 1.7567 1.7122 2.53%

Today's Market Highlights

Euro data out today include Eurozone Business Climate, Economic Sentiment Indicator, and Consumer Confidence figures this morning (10:00 BST). Softer figures could provide some downside risk. However, a pick-up in Germany’s Harmonised Index of Consumer Prices could later be euro supportive as markets look for signs of inflationary pressures in the Eurozone.
 
In the afternoon, attention shifts to North America. The US releases ADP Employment Change and the second estimate of Q1 GDP (13:15, 13:30). While little changed figures may have a muted impact on the dollar, investors will keep an eye out for any surprises.
 
The latest Canadian Current Account print is projected to show a wider deficit, which may weigh on the loonie. The Bank of Canada is widely expected to keep interest rates on hold at 1.25%; overnight index swaps indicate a 17% chance that the Bank will hike. Investors have been pricing in two more hikes this year and will keep an eye for any new policy clues from today’s comments.

Today's Economic Calendar

Time Currency Release Consensus Previous
10:00 EUR Business Climate (May) 1.30 1.35
10:00 EUR Consumer Confidence (May) 0.2 0.2
10:00 EUR Economic Sentiment Indicator (May) 112.1 112.7
13:00 EUR Harmonized Index of Consumer Prices YoY (May) 1.8% 1.4%
13:15 USD ADP Employment Change (May) 190K 204K
13:30 USD GDP (Q1) 2.3% 2.3%
13:30 USD Personal Consumption Expenditures QoQ (Q1) 2.7% 2.7%
13:30 CAD Current Account (Q1) -18.00B -16.35B
15:00 CAD BoC Interest Rate Decision 1.25% 1.25%
15:00 CAD BoC Rate Statement
19:00 USD Fed's Beige Book
00:01 GBP Gfk Consumer Confidence (May) -8 -9

Caxton