The early part of this week witnessed some choppy market activity, setting the stage for potential heightened volatility as key macroeconomic events unfold midweek. On Wednesday, S&P Global will release preliminary July Manufacturing and Services PMI data for Germany, the Eurozone, the UK, and the US. Additionally, the Bank of Canada (BoC) is set to announce its monetary policy decisions during the American trading hours. The US economic calendar also features critical data on Goods Trade Balance and Wholesale Inventories for June.

US Dollar and Treasury Yields

The US Dollar (USD) strengthened on Tuesday, benefiting from a negative shift in risk sentiment. The USD Index closed at its highest level in nearly two weeks, around 104.50. As of early Wednesday, the USD Index remains in a consolidation phase, while US stock index futures are down between 0.4% and 0.9%. Meanwhile, the benchmark 10-year US Treasury bond yield holds steady above 4.2% after a virtually unchanged close on Tuesday.

Bank of Canada’s Policy Decision

The BoC is widely expected to cut the policy rate by 25 basis points to 4.5%. Following the rate decision at 13:45 GMT, BoC Governor Tiff Macklem will discuss the policy outlook and respond to questions from the press. USD/CAD has seen gains for five consecutive trading days and continued its upward trajectory early Wednesday, trading near 1.3800, its highest level since mid-April.

Currency Pair Movements

• EUR/USD: After failing to reclaim 1.0900, EUR/USD faced bearish pressure on Tuesday, closing deep in negative territory. The pair remains under pressure in the European morning on Wednesday, trading below 1.0850.
• GBP/USD: Despite erasing some losses after dipping below 1.2900 on Tuesday, GBP/USD failed to gain recovery momentum. The pair continues to face modest bearish pressure below 1.2900 at the start of the European session.
• AUD/USD: During Asian trading hours, Australia’s Judo Bank Composite PMI edged lower to 50.2 in July’s flash estimate from 50.7 in June. AUD/USD extended its downtrend early Wednesday, dropping below 0.6600 for the first time in over a month.
• USD/JPY: Despite the renewed USD strength on Tuesday, USD/JPY continued to push lower, losing nearly 1% on the day. The pair remains under bearish pressure early Wednesday, trading at its lowest level since mid-May near 154.50, falling more than 0.5%.

Commodities: Gold

After experiencing heavy losses on Monday, Gold regained traction and closed above $2,400 on Tuesday. Early Wednesday, XAU/USD holds its ground and edges higher toward $2,420.

As we move through midweek, market participants should brace for potential volatility spurred by the release of key economic data and the BoC’s policy decisions. The movements in major currency pairs, the USD Index, and commodities like Gold will be closely watched as traders react to these critical updates.