FOREX: EUR Edges USD, Yen Steadies
Foreign exchange rates move in favour of the Euro against the U.S. dollar in the market, Japanese Yen, however, remains steady but the British pound still maintains a losing streak.
The euro recovers slightly after hitting a seven-and-a-half week low against the dollar earlier, driven by a pick-up in U.S. interest rate expectations, ING says.
The market is re-entering bets the Federal Reserve will raise rates in June, having previously speculated that rates had peaked, ING analyst Francesco Pesole says in a note.
EUR/USD has probably suffered a substantial “long squeeze,” where speculators close earlier bets on it rising, he says.
He says there’s “considerable room” for a rise in Fed rate expectations, so it’s risky to pick a bottom in EUR-USD. “The next real support level will probably be at 1.0700.”
The US dollar edges down from high levels as traders take profit after the DXY index hit a two-month high of 103.6240 on Thursday.
However, it remains well-positioned to gain as markets now price in some chance of a rate increase at the Federal Reserve’s June meeting, which is “clearly strengthening the dollar across the board,” analysts at UniCredit Research said in a note.
“The dollar index (DXY) jumping above 103.50 is a clear sign of the renewed strength of the greenback, as the index was on the edge of 101 just at the start of this month,” they say. The DXY index is last down 0.2% at 103.397.
Japanese Yen Steadies
The Japanese yen steadied around 138.5 per dollar, pausing its recent decline on stronger-than-expected domestic inflation data.
The headline inflation rate in Japan unexpectedly accelerated to 3.5% in April despite forecasts for a further slowdown to 2.5%, while the core inflation rate rose to a three-month high of 3.4% and exceeded the Bank of Japan’s 2% target for the thirteenth straight month.
This challenges the BOJ’s view inflation will slow back below its target later this year as cost pressures dissipate.
Meanwhile, the yen remains close to its lowest levels in almost six months as growing optimism over the US debt ceiling negotiations and hawkish signals from the Federal Reserve weighed on the currency.
US President Joe Biden and House Speaker Kevin McCarthy indicated confidence that a US default would be averted, while US Federal Reserve officials continued to push back against speculations for interest rate cuts this year.
Sterling Lost 0.62% to $1.2410. British pound/dollar: 1.2410 dollars per British pound (0.8058 British pound per dollar) Today the British pound lost 0.62% vs. the dollar. Largest one-day percentage decline since Thursday, May 11, 2023. GBP has been down four of the past six sessions
Off 16.57% since the pre-Brexit vote level of 1.49 on Thursday, June 23, 2016. Month-to-date, the pound is down 1.23% vs the dollar. Year-to-date the British pound is up 2.58% vs the dollar. #FOREX: EUR Edges USD, Yen Steadies Naira Steadies as Banks Issue Update on FX Purchase