Dollar Mixed Ahead of U.S. Inflation Data

The May inflation print is expected to show headline CPI accelerating to 4.2% Year-over-Year, up from 3.8% Year-over-Year in April. The last time that the headline figure came in above 4% was May of 2023. Inflation figures at this level would support a higher-for-longer narrative with regard to U.S. interest rates and would further strengthen the case for the Federal Reserve’s next policy move to be a hike, rather than a cut. Traders have already priced in 25bps of tightening by December of this year, with a roughly 60% probability of that move coming as early as October.

U.S. Central Command announced yesterday that a U.S. Army Apache helicopter was downed by Iranian forces on Monday, and that the U.S. would be conducting self-defense strikes in response. Iran denies responsibility for downing the helicopter. U.S. forces struck Iranian air defenses, ground control stations, and radar sites near the Strait of Hormuz, and Iranian forces responded by launching missiles at targets in Jordan, Kuwait and Bahrain, including a U.S. command center at Al-Azraq Air Base. The strikes endanger talks to conclude the conflict with President Donald Trump stating that Iran will ‘pay the price’ for dragging out negotiations and Iranian officials stating that they are ready to ‘respond with authority.’

CAD

The Canadian Dollar is up against the Buck this morning as Traders await the Bank of Canada’s interest rate decision at 9:45am. The BoC is widely expected to keep interest rates on hold at 2.25% after a second consecutive quarter of GDP contraction has pushed the country into a technical recession. Officials are cautioning against over-interpreting the technical recession signal, but weakness in growth must be acknowledged.

JPY

The Japanese Yen is down against the Greenback this morning following an announcement that Bank of Japan Governor Ueda has been hospitalized and will be unable to attend the BoJ’s policy meeting early next week. Deputy Governor Himino will serve as acting chair until Ueda’s return, but Trader’s are interpreting this as reducing the likelihood of a hawkish tilt at the meeting. The Yen dropped to its weakest level since April 30th as a result, thereby keeping the possibility of intervention high. That being said, many Traders are beginning to treat intervention as a volatility event, rather than a re-pricing event.