• Inflation weighs on Fed outlook
  • No one really wins this time
  • CAD takes a tumble
  • Further clarity from the Fed?

The dollar sits slightly weaker on the last day of May as investors close their books and head into June. The dollar has been sliding since Fed Governor Lael Brainard spoke yesterday, her comments distorting investor’s expectations for Fed policy. Brainard shifted to a more positive tone for the global outlook, an item she does tend to hang a lot of value on. However, it isn’t all sunshine on the horizon. While Brainard supports a hike relatively ‘soon’, she cited continuing concerns on the inflation front. Soft core and headline inflation have prompted the Fed Governor to rethink the longer-term path of rate hikes if it persists. Note that we are taking this with a grain of salt as Brainard typically leans quite dovish, erring on the side of caution.

More trouble lies ahead of Theresa May and her Conservative Party. The Times reported early Wednesday morning that the latest YouGov poll shows that her majority in Parliament has been completely erased, giving no party a majority in the legislature. May originally called the elections in order to secure a larger majority in the House of Commons, but the rival Labour Party has steadily gained ground since her reversal on social care. If May cannot secure a majority, the path ahead will be far more challenging as she is forced to align with another party and govern a coalition or minority government. Much like Brexit, this event holds a lot of bilateral risk. We expect sterling to continue trading on political headlines and polling figures ahead of the elections next Thursday.

Oil producers are largely fulfilling their commitment to production cuts, with compliance at 98% according to a recent survey. Yet, oil prices fell once again this morning, touching a three-week low. This time, we have production from Libya to thank. Recovering from a technical issue that had dampened output, Libya’s oil production surged to more than a three-year peak, the National Oil Corporation said. This makes US figures due Thursday all the more important for commodities, analysts are expecting crude oil stockpiles to fall. CAD has slipped on account of the pressure from oil ties with disappointing GBP figures. Growth for the first quarter came in at 3.7% versus the 4.2% expected, allowing the US dollar to rise move than half a percent against its Canadian counterpart.

The Fed’s Beige Book is due today, and while it typically isn’t a big driver for currencies it is an important release in a world where the Fed seems largely mixed on the future of monetary policy. While the macroeconomic outlook remains in flux we can expect the dollar to remain under pressure.

EURUSD: Euro higher after German unemployment fell to a record low and the USD remains on the back foot.

GBPUSD: Sterling recovered overnight losses, snubbing polls that show Theresa May is no longer set to have a majority in parliament/

AUDUSD: Despite stronger data out of China, the Aussie dollar has been dragged down by risk-off trades.

USDCAD: a one-two punch to CAD this morning, as growth figures disappoint and oil prices dip, sending the pair higher by more than half a percent.

USDJPY: Risk-off trade has investors moving in to the yen, pushing USD/JPY into the mid-110s.