FX Daily: Dollar Debasement Trade In Retreat

The dollar is strengthening as US real interest rates rise and investors unwind previous debasement trades ahead of the May CPI release. Meanwhile, divergence in central bank policy continues with the BoC signaling dovishness and the CNB trending toward a rate hike cycle.

Key Takeaways

• 1.The 'dollar debasement trade' is unwinding as rising US real rates (up 60bp in six weeks) favor the USD over assets like gold and bitcoin.
• 2.Market focus is on the US May CPI report; higher inflation figures are expected to keep the dollar supported and reinforce Fed rate hike expectations.
• 3.The Bank of Canada is expected to remain dovish due to a technical recession and investment uncertainty, making the CAD a laggard in the G10 space.

Table of Contents

• FX Daily: Dollar debasement trade in retreat
• USD: Core CPI will be key today
• EUR: Consolidating into ECB
• CAD: Bank of Canada to lean dovish today
• CZK: Potential CNB hikes painting bullish picture for FX
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