The yen has gained on the vote of confidence in the Japanese economy, and that rates may start to rise sooner than expected.
The market is increasingly seeing a risk that the Fed pauses in its rate cycle -- not only that but also the peak in the interest cycle will be considerably lower.
It's almost exclusively the rate outlook driving things in the sense that at the beginning of this week the market was 50/50 priced for a third rate hike this year with two priced in with certainty, but as things stand now even a second hike is looking questionable.
The retail sales report makes it more likely at the margin to cause rate cuts. The balance of risks is that the next BOE rates move is lower, which would be negative for sterling.
With the election out of the way, the attention is now on the Bank of Canada. We're still at the early stages of a hiking cycle, which is moderately supportive of the Canadian dollar.
is still hoping to squeeze one more interest rate cut in.
People are keen to see more evidence of rates going up in Europe and further comments are helping the euro bulls. I don't see a big move in the euro coming yet though, while U.S. rates are still this high.
The signal that the Fed seemed to be sending yesterday is that they don't know where rates are going beyond March, hence the references to data-watching.
The risk is that the deficit is rather worse than the market is looking for and if that's the case it may swing the focus back to structural dollar negatives and away from the interest rate focus.
Sentiment is generally negative for the dollar even in the face of good news. The market is looking through the expected rate hikes. If you take away the interest rate support for the dollar... and the structural problem is still there, the trend for the dollar is downwards.
Interest rates are at their peak, but it's probably going to be some time before we see them coming down, probably another six months or so, ... an unhelpful factor...but is probably at its worst in terms of annual inflation now.
The interest rate dynamics have been favorable and the indicators have been better than expected over the last four or five weeks.