Dollar Extends Gains for Third Day

The Dollar is being buoyed by a shift in market sentiment towards a higher-for-longer outlook with regard to interest rates. Traders have priced in one full 25 bps hike, coming as early as October, with a further ~13 bps of tightening implied beyond that, which suggests that a meaningful number of participants are now betting on two rate hikes by year's end. This level of hawkish repricing is giving the Dollar room to strengthen despite oil prices continuing to fall sharply as shipping traffic begins to pick back up through the Strait of Hormuz. Additionally, forward-looking Purchasing Managers Index (PMI) numbers released yesterday show strong manufacturing demand and a pickup in new orders, allowing businesses to position themselves for strong growth moving forward. Those numbers reinforce the idea that the U.S. economy is accelerating relative to its peers, which is a direct driver of dollar strength.

EUR

The Euro is down against the Buck this morning to its lowest level in over a year. Traders are continuing to digest European Central Bank President Christine Lagarde’s dovish comments from earlier this week, which are in direct contrast with the hawkishness of the U.S. Federal Reserve following their June meeting. This opens the door for a further divergence in interest rates between the two jurisdictions as a core structural driver of price action. Traders are currently still betting on one additional 25 bps hike for the Eurozone in 2026, but Lagarde’s comments have led to a significant paring of those bets over the last several days. Some analysts are beginning to argue that the Euro looks overvalued relative to those rate spreads. The Euro is also at a ten-month low versus the British Pound.

CAD

The Canadian Dollar is down against the Greenback this morning for its tenth consecutive day of decline. This marks the longest consecutive string of losses since 2017, and the Loonie’s worst level versus the Buck since April 2025. The primary driver of this decline is interest rate divergence, with the Bank of Canada taking a comparatively dovish approach to the Federal Reserve. The BoC has indicated that it intends to move more cautiously and as a result Traders are pricing in less than 15 bps of tightening by year’s end. Additionally, due to Canada’s position as a major oil exporter, the Loonie is particularly sensitive to crude oil prices and has felt outsized pain from the recent sharp decline.