USD
The dollar fell for a second day on Wednesday, with the index closing 0.4% lower near 100.5, now down almost a percent since Tuesday’s CPI report. Having firmed through the London morning, the greenback reversed once June PPI confirmed the prior disinflation signal, factory-gate prices falling 0.3% MoM against a flat consensus, with the annual rate easing to 5.5% and core also undershooting. Chair Warsh welcomed data moving in the right direction in his Senate testimony, while resisting any suggestion of an all-clear on inflation, and the Beige Book’s slight-to-moderate growth assessment did little to challenge a dovish repricing that leaves July 29th hike odds marginal and September near a coin flip. Even so, downside was limited by Middle East hostilities. Wednesday brought fresh US strikes on Iran while Tehran threatened wider energy export disruption, keeping at one-month highs near $85. Today’s focus is on June retail sales at 13:30 BST, seen rising just 0.2% MoM as cheaper gasoline drags, alongside jobless claims. We continue to see dollar risks skewed lower as hike bets unwind.
EUR
The euro made only modest headway against a softer dollar on Wednesday, with edging into the high-1.14s while conspicuously lagging sterling. Markets continue to price roughly 45bp of further ECB tightening this year on top of June’s hike, and with the Governing Council entering its quiet period today ahead of next Thursday’s decision, little stands in the way of that pricing domestically; today’s calendar holds only final Italian inflation, with the eurozone-wide June print due Friday. We still think next week comes too early for another move, though a sustained closure of the Strait keeps a September hike firmly on the table. For today, then, EURUSD trades as a dollar story: soft US retail sales pose modest upside risk, but with crude rising for a fourth day, we would not chase rallies.
GBP
Sterling was Wednesday’s standout, rallying 1.1% against the dollar, consolidating in the mid-1.35s this morning. Beyond the softer dollar, politics did much of the work: after Rachel Reeves’ Mansion House farewell urging fiscal stability, reports that Shabana Mahmood is expected to succeed her as Chancellor, with Ed Miliband ruled out, have eased fears around the coming transition. This morning’s data changed little: May GDP rose 0.1% MoM, marginally better than expected, with services growth of 0.3% offsetting falls of 0.5% in production and 0.8% in construction as the war’s energy shock weighed on industry. Still, Q2 is tracking close to flat, consistent with Governor Bailey’s testimony on Tuesday that the renewed US-Iran conflict has had limited inflation impact so far against a fairly soft activity backdrop, comments leaning against the 37bps of 2026 tightening still priced ahead of this month’s MPC decision. Labour leadership nominations close today, with Andy Burnham set to be confirmed tomorrow and entering Downing Street on Monday, before next week’s jobs and CPI data. We retain a modest downside bias into the handover, though a market-friendly cabinet would soften the blow.
CAD
The Bank of Canada held rates at 2.25% yesterday, a sixth consecutive pause matching both our call and unanimous consensus, with the loonie similarly unmoved. entered the decision below 1.41, near one-month lows, and sits in the mid-1.40s this morning. The tone was mildly constructive, the Bank judging that uncertainties have eased since May, even as the fresh MPR cut 2026 growth to 0.7% and pencilled in a 2.5% annualised Q2 rebound. Governor Macklem again signalled an intention to look through oil-driven swings in headline inflation, despite recent events leaving staff forecasts somewhat dated. We continue to expect no change in rates through 2026, compared to the roughly 20bps of tightening priced by markets, but yesterday’s decision offered little to force a reassessment. Today offers only June housing starts domestically, ahead of next week’s CPI report, leaving USDCAD to trade off US retail sales and crude. With both the Fed and BoC on hold in our base case, rate differentials should gradually close in favour of USDCAD downside.
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