Market Briefing - Dollar Retreats in Summer Heat

For the dollar, it’s summer, summer, summertime, time to sit back and unwind. The greenback is following the philosophical stylings of DJ Jazzy Jeff and the Fresh Prince this morning, sitting by the pool and dropping against all of the majors as economic data releases slow to a trickle and central banks remain on the sidelines. Treasury yields continue to drop as expectations converge on a 75 basis point move at next week’s Federal Reserve meeting.

The euro jumped overnight on reports suggesting that the European Central Bank might follow its counterparts elsewhere in raising rates by 50 basis points at Thursday’s meeting. This would run counter to guidance provided over the last month, but President Christine Lagarde did open the door to such a move in a speech last month, saying “There are clearly conditions in which gradualism would not be appropriate” - and there are clear parallels with the communication process ahead of the last Federal Reserve meeting.

Tomorrow, the European Commission is expected to deliver a plan to cut gas demand and diversify supplies as the bloc prepares for a possible drop in Russian deliveries when the Nord Stream 1 pipeline restarts after annual maintenance.

Firm support appears to be in place just above parity with the US dollar, and technicals suggest the pair is oversold, but downside risks going into Thursday are significant.

Canadian dollars are changing hands at slightly higher levels, with tomorrow’s consumer price index looming as a possible volatility catalyst. Inflation is expected to jump 1 percent month over month in June on elevated gasoline costs, but monetary policy implications will be limited - the July report will land before the next Bank of Canada meeting on September 7, and prices at the pump have already come down.

West Texas Intermediate is clinging to the $100 mark and Brent is trading for $104 as demand forecasts continue to slump. Reuters quoted Saudi Arabia's foreign minister, Prince Faisal bin Farhan, saying, “As of today, we don't see a lack of oil in the market. There is a lack of refining capacity, which is also an issue, so we need to invest more in refining capacity”.

US housing starts are expected to hit an annualized 1.57 million in June, up from 1.549 million in the prior month. This comes after yesterday’s release showing that the National Association of Home Builders activity index fell by 12 points in July. That marked the second-largest one-month drop in the survey’s 37-year history, only exceeded during the coronavirus lockdown in April 2020.

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USD    Housing Starts, June

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GBP Consumer Price Indices, June

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EUR European Central Bank Rate Decision

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CAD Retail Sales, May

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