Market Drivers – US Session – Wednesday, July 13

The Bank of Canada hiked its policy interest rate by 100 bps to 2.5% in July, compared to the market expectation for a rate increase of 75 bps. The BOC acknowledged that it had underestimated inflation since the 2021 spring because of global factors. USD/CAD slid to 1.2933, and trades around 1.2980 amid the weak tone of US equities.

According to the Fed’s Beige Book, released on Wednesday, wages and other prices gains were seen across most of the 12 districts. As for the overall economic outlook; the Fed said that the US economy grew at a modest pace since mid-May but several of the central bank’s regional districts reported growing signs of slower demand and five noted recession concerns.

The report is a collection of business inputs, comments and feedback from around the country prepared in time for the Fed’s next meeting on July 26-27.

Economic Data

The US dollar was marginally lower on Wednesday after the release of the US Consumer Price Index, which soared by 9.1% YoY in June, much worse than the 8.8% expected. The core reading printed at 5.9%, below the previous 6%, but above the 5.8% expected, signaling price pressures are far from over.

The AUD/USD pair holds on to modest gains near 0.6760 ahead of the release of Australian employment data. The country will report June employment data in the upcoming Asian session and is expected to have added a modest 25K new jobs after gaining 60.6K in the previous month, while the Unemployment Rate is foreseen down to 3.8% from 3.9% in May.

Other Developments

The CPI reading triggered risk aversion, with equities diving and government bond yields soaring amid speculation the US Federal Reserve may put larger rate hikes on the table, and hence, increase the risk of a recession. Germany also published its CPI figure, which was confirmed at 7.6% YoY, as previously estimated.

Positive UK data supported the sterling during European trading hours, as the monthly GDP surged to 0.5% in May, much better than the previous -0.3%. Additionally, Industrial Production in the same month rose by 1.4% YoY, while Manufacturing Production increased by 2.3% YoY, beating expectations. The pair lost ground as the day went by, ending the day at around 1.1890.

The EUR/USD pair peaked at 1.0121 but currently trades at around 1.0055, hurt by central banks’ imbalances. The US Federal Reserve has hiked rates multiple times and will likely add another 75 bps this month. The European Central Bank, on the other hand, will start with its modest tightening in July by hiking 25 bps.
Gold Price settled at $1,733 a troy ounce, while crude oil prices saw little action, and WTI currently trades at $95.80 per barrel.

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