EUR / USD
EUR/USD faces growing headwinds amid a bounce back seen in the dollar on Friday. Federal Reserve's upcoming policy meeting will be crucial, with markets expecting officials to signal just one 25-basis-point cut in 2025, down from previous expectations of two cuts. Recent U.S. economic data shows cooling inflation, with May CPI at 2.4% year-over-year, though oil price spikes from geopolitical tensions could reignite inflationary pressures.
The European Central Bank is nearing the end of its easing cycle, creating policy divergence that could impact currency flows. The dollar's recent weakness has helped push EUR/USD higher, but safe-haven flows amid heightened geopolitical risks could support the greenback. Central banks worldwide are displaying collective caution as they assess the impact of U.S. trade policies and Middle East developments on growth and inflation.
The euro remains vulnerable to energy price shocks, given Europe's reliance on Middle East oil flows through the Strait of Hormuz. Market sentiment suggests continued volatility as traders balance geopolitical risks against monetary policy expectations.
USD / JPY
The Japanese Yen held its nerve last week despite growing currency volatility, as the USD/JPY remained capped by the shorter-term DMAs.
The Bank of Japan is expected to maintain its interest rate at 0.5% during its June 17 meeting, with markets closely monitoring any shifts in forward guidance regarding potential 2025 rate adjustments. Japan's economic indicators paint a concerning picture, with exports forecasted to decline 5% year-on-year in May and household spending showing weakness after a 0.1% yearly drop in April.
Japanese inflation data due June 20 will be crucial, with core inflation expected to rise to 3.6%, potentially influencing the BoJ's policy stance. Rising oil prices stemming from Middle East conflicts pose additional challenges for Japan's economy, though the Yen's traditional safe-haven status provides some support during periods of geopolitical uncertainty.
Recent currency strength appears more influenced by interest rate differentials than safe-haven flows, suggesting monetary policy developments will likely dominate near-term price action.
GBP / USD
The British pound faces growing headwinds as the Bank of England's upcoming policy meeting adds another layer of uncertainty. Recent UK economic data has shown some positive signs, with accelerated expansion in the services sector and signs of recovery in manufacturing PMI boosting market confidence. However, market expectations of a milder future monetary policy from the Federal Reserve have restrained the U.S. dollar, providing support for GBP/USD's upward movement.
The Bank of England faces a delicate balance, with elevated headline inflation at 3.5% still well above target, though markets expect rates to remain on hold at 4.25% with a 7-2 vote split. While the pound has shown resilience, supported by improving domestic data, the uncertain global backdrop and potential for renewed inflation pressures suggest continued volatility ahead.
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