The foreign exchange market was mixed, with the dollar remaining buoyed against the euro and sterling, while losing ground to the yen and Loonie. Yesterday’s stamp-tax hike from China to tame exorbitant gains in its stock market added pressure to carry trades as traders reassessed the scope for increased jawboning against excessively selling the lower yielding currencies such as the yen and Swissie.
Given recent focus on the Bank of Canada further tightening interest rates to contain inflation, markets will closely analyze Canada’s growth report due out at 8:30 AM. Canada’s March GDP is forecasted to jump to a robust 3.5% from 1.4% a monthly earlier. Firmer economic conditions will provide greater scope for the BoC to hike rates after its anticipated July 25-bp tightening.
The FOMC released the minutes from its May meeting, in which the Fed left monetary policy unchanged at 5.25%. The overall tone from the minutes was mixed with the board emphasizing caution to lingering risks to inflation, with its predominant concern being the risk of inflation failing to moderate as expected. However, the minutes did offer a slightly more upbeat assessment for the economic outlook, saying, “recent sub-pay performance probably exaggerated the weakness in underlying demand, and the rate of economic growth was expected to pick up in coming quarters’.
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