Fed in Focus: Dollar Climbs Amid Global Uncertainty

Today's expected range for the Canadian Dollar against the major currencies:

US Dollar        1.3550-1.3790

Euro                 1.5590-1.5820

Sterling            1.8240-1.8490

WTI Oil (opening level) $74.65

The CAD/USD is opening at 1.3662 ( 0.7319 )

The US dollar firmed yesterday despite a soft US May Retail sales report, perhaps driven by squaring of heavy short USD positioning at the margin ahead of today’s FOMC meeting. Still, it is difficult to conjure a hawkish scenario on today’s FOMC meeting, given that expectations for a rate cut in July are quite low, as noted above in the Fixed Income section. The market could be far more sensitive to the weekly jobless claims data today after three consecutive slightly elevated readings.

Headlines

·    Trump called for Iran’s “unconditional surrender” while threatening its supreme leader before meeting with his national security team to discuss the escalating Middle East conflict, fueling speculation that the US may join Israel's attack on Iran, raising concerns about supply disruption of crude from the region. Meanwhile, both Israel and Iran indicated they planned to ratchet up the conflict.

·    UK May CPI out at 0.2% MoM as expected and 3.4% YoY vs. 3.3% expected and 3.5% in April. The May Core CPI reading fell to 3.5% YoY from 3.8% in April as expected, while the Core Services number fell to 4.7% vs. 4.8% expected and 5.4% in April.

·    US retail sales fell a seasonally adjusted 0.9% month-on-month in May 2025, the largest drop in four months, following a revised 0.1% decline in April and exceeding the forecasted 0.7% fall. Consumers pulled back ahead of expected tariffs, with motor vehicle & parts dealers seeing the biggest decline.

·    NAHB/Wells Fargo Housing Market Index fell two points to 32 in June 2025, the lowest since December 2022 and the third lowest reading since 2012, missing expectations of a rebound to 36. This reflects high interest rates and pessimistic consumer demand amid tariffs and uncertain economic conditions raising mortgage costs.

·    US industrial production fell 0.2% in May 2025, missing expectations of a 0.1% rise, after a 0.1% increase in April. Manufacturing output rose 0.1%, below the forecasted 0.2%.

·    US import prices remained unchanged in May 2025, defying expectations of a 0.2% drop, following a 0.1% rise in April. Non-fuel import prices rose 0.3%, extending a 0.4% increase, the sharpest in a year, as foreign firms maintained prices despite aggressive tariffs.

Key Points

·    Equities: Israel-Iran conflict weighs, Trump rhetoric, energy outperforms, Fed decision eyed

·    Volatility: VIX above 21, short-term hedges surge, Fed/geopolitics key risks

·    Digital assets: Bitcoin/ETH drop, IBIT/ETHA see inflows, regulation news, market cautious

·    Fixed Income: US treasury yields remains mired in middle of range

·    Currencies: USD firms ahead of today’s FOMC meeting. Sterling sharply weaker

·    Commodities: Broad gains led by energy, gold, silver and grains lift sector to 2022 high