GBP/USD Rebounds Ahead of FOMC Meeting Minutes
GBP/USD recovered near 1.3500, following an upbeat US Consumer Confidence report. In May, US consumer morale rebounded, with the Conference Board's Consumer Confidence Index rising to 98.0 from 86.0 (revised from 85.7), reversing the previous decline. Consumer sentiment strengthened in May as views on current business and labour market conditions shifted. The Present Situation Index increased by 4.8 points to 135.9. More significantly, the Expectations Index, which measures short-term expectations for income, economic activity, and employment, gained 17.4 points to 72.8, remaining below recession fears. Durable Goods Orders in the United States (US) declined by 6.3%, or $19.9 billion, in April to $296.3 billion, as reported by the US Census Bureau on Tuesday. This reading followed a 7.6% increase (revised from 9.2%) reported in March and came in slightly better than the market expectation of a 7.9% decrease. Excluding transportation, new orders increased by 0.2%; excluding defence, new orders decreased by 7.5%. Transportation equipment, which also experienced a decline after four consecutive monthly increases, contributed to the decrease of $20.3 billion, or 17.1%, to $98.8 billion. Federal Reserve Bank of New York President John Williams emphasised the importance of anchoring inflation expectations firmly. Williams aims to prevent inflation from becoming deeply entrenched, as this could potentially lead to permanent changes, by reacting proactively when inflation starts to stray from the target. On Tuesday, Minneapolis Fed President Neel Kashkari stated that policymakers should refrain from making any adjustments to interest rates until they have precise estimates of the inflationary impact stemming from higher tariffs.
Conversely, sterling underperforms against the US dollar as hotter-than-expected United Kingdom (UK) Consumer Price Index (CPI) data and robust growth in retail sales, which support the Bank of England's (BoE) dovish stance, weigh on the pound. The Confederation of British Industry (CBI) reported that the sales balance dropped to -27% in May, down from -8% in April, representing the sharpest decline since March. Retailers are facing significantly reduced confidence, with a net balance of -29% anticipating a worsening business situation in the next three months, the lowest level recorded since May 2020.
In the upcoming sessions, the FOMC minutes, the preliminary US Q1 GDP print, and the US Personal Consumption Expenditure (PCE) Price Index, along with Bank of England Governor Bailey's speech, are expected to influence the GBP/USD exchange rate.
AUD/JPY Hovers Ahead of Japan's National CPI
AUD/JPY struggles near 92.82 following the release of the Australian Monthly Consumer Price Index (CPI) numbers. On Wednesday, the Australian Bureau of Statistics (ABS) reported that the monthly Consumer Price Index (CPI) remained steady at 2.4% in the year to April, compared to a 2.4% increase observed in March, slightly above the market forecast of 2.3% growth. Last week, the Reserve Bank of Australia (RBA) resumed its policy easing approach by reducing the interest rate by 25 bps. In the policy statement, the central bank noted the success in softening inflationary pressures, cautioning that US-China trade barriers pose downside risks to economic growth. Moreover, Australia's plan to renege on the Darwin Port lease has been criticised by China's ambassador, creating a cautious market mood regarding Australia-China relations and its impact on the risk-sensitive Aussie. On the data front, China's industrial profits rose 3% year-over-year in April, following previous growth of 2.6%. Additionally, profits increased 1.4% year-over-year (YoY) in the first four months of 2025, advancing from 0.8% growth in the January–March period.
Recent remarks from China's Premier Li Qiang at the symposium with Chinese firms in Jakarta over the weekend highlighted that in response to mounting disruptions in the global economic and trade landscape, China is actively exploring new policy tools to adapt to evolving conditions. The growing fragmentation of industrial and supply chains, coupled with rising trade barriers, has significantly affected the economic development of nations worldwide. Against this backdrop, China is considering a range of policy responses, including some unconventional measures, to address these challenges as the situation unfolds. At the same time, China remains committed to deepening economic cooperation with a broader network of international partners.
On the yen's front, a generally positive risk tone dampens the safe-haven demand for the Japanese yen (JPY), lowering the currency's value. The recent Services Producer Price Index (PPI), a leading indicator of Japan's service-sector inflation, rose by 3.1% from a year earlier in April. Japan's Finance Minister Shunichi Kato stated this Wednesday that the government is concerned about the recent spike in yields and will closely monitor the situation in the bond market. On Tuesday, BoJ Governor Kazuo Ueda reaffirmed the central bank's readiness to "adjust the degree of monetary easing as needed" to ensure inflation targets are achieved. Governor Ueda also flagged upside risks to core inflation stemming from persistently high food prices, adding weight to speculation that the BoJ could move further along the path of policy normalisation later this year.
Investors will focus on upcoming inflation figures, including Australia's CPI due Wednesday and Japan's national CPI on Thursday, for further direction of the AUD/JPY's movements.
EUR/GBP Sinks Following Optimism Over US-EU Trade Deal
EUR/GBP lost ground near 0.8385, as the euro gained ground against the sterling amid the de-escalation of trade tensions between the European Union (EU) and the United States (US). US President Donald Trump suspended his 50% threatened tariffs on US imports of European goods until July 9 following a weekend conversation with European Commission President Ursula von der Leyen. The increasing optimism surrounding a possible EU-US trade deal could elevate the shared currency in the near term. Additionally, a European Central Bank (ECB) policymaker and one of its most hawkish officials, Robert Holzmann, stated that the ECB should refrain from further interest rate cuts until at least September amid the ongoing EU-US trade war. Holzmann further noted that he saw "no reason" for the central bank to lower rates at its June and July meetings.
On the data front, the German GfK Consumer Confidence Survey indicated a slight improvement to -19.9 from the previous -20.8, but it remains at extremely low levels. The latest monthly Consumer Expectations Survey by the European Central Bank revealed on Wednesday that Eurozone inflation is likely to trend higher for the year ahead in April. Inflation expectations for the next 12 months rose further, by 0.2 percentage points to 3.1% from 2.9% previously. Inflation expectations for three years ahead remained unchanged at 2.5%, while five years ahead also remained unchanged at 2.1%. In May, France's Harmonised Index of Consumer Prices (HICP) increased by 0.6% year-on-year, down from a 0.9% rise in April, falling short of the 0.9% estimates. This marks the lowest reading since December 2020. Meanwhile, German Import Prices decreased sharply by 1.7% month-on-month, more than the anticipated 1.4%, representing the largest monthly decline since the pandemic, primarily due to an 11.2% drop in energy prices. Additionally, German Unemployment Change saw a rise of 34,000 in May, significantly surpassing the forecast of 12,000, while the unemployment rate remained unchanged at 6.3%, the highest since 2015 when excluding pandemic peaks. French Preliminary GDP quarter-on-quarter stood at 0.1%, aligning with expectations, showing modest growth supported by inventory accumulation despite weak consumer spending and exports. French Consumer Spending on a month-on-month basis grew by 0.3% in April, under the anticipated 0.8%, but it was the first monthly increase in 2025, suggesting a tentative recovery in household demand.
On the other hand, traders become increasingly confident that the Bank of England (BoE) will delay its easing cycle after the release of the stronger-than-expected growth in the UK inflation data for April. Furthermore, in its latest assessment of the UK economy, the IMF raised its growth forecast for 2025 from 1.1% to 1.2%. However, it cautioned about potential challenges and advised Chancellor Rachel Reeves to relax her fiscal rules to prevent the necessity for emergency spending cuts.
As UK economic data is limited today, the overall market sentiment regarding German unemployment and Eurozone consumer inflation expectations will be a key driver of the EUR/GBP exchange rate.
NZD/USD Gains as the RBNZ Cuts Rate to 3.25%
NZD/USD strengthened to near 0.5969 following the RBNZ's interest rate decision to reduce its Official Cash Rate (OCR) by 25 bps to 3.25% from 3.5% in the May policy meeting. The minutes from the RBNZ interest rate meeting indicated that inflation is within the target band. The committee is well-positioned to respond to both domestic and international developments, maintaining price stability over the medium term. The projection is for the OCR to be 3.12% in September 2025 and 2.87% in June 2026, which increases the likelihood of further rate cuts. At the post-meeting press conference, Christian Hawkesby, the acting Governor of the Reserve Bank of New Zealand (RBNZ), addressed media inquiries. He noted that inflation remains within the target range and described the choice to maintain current rates as a positive indicator. He also recognised that interest rates have been significantly reduced to align them with a neutral zone.
On the other hand, despite the stronger US Consumer Confidence data supporting the greenback, market sentiment around the FOMC minutes could hinder the currency. The Conference Board's Consumer Confidence Index increased to 98.0 in May from 86.0 (revised from 85.7), suggesting growing optimism among US consumers. Meanwhile, US Durable Goods Orders declined by 6.3% in April compared to a 7.6% increase in the previous month (revised from 9.2%), as reported by the US Census Bureau on Tuesday. This figure was better than the estimated decrease of 7.9%. Furthermore, the US Census Bureau indicated that Durable Goods Orders fell by 6.3% in April, marking a stark turnaround from the 7.6% increase (revised from 9.2%) in the previous month. However, this reading was better than the market's expectation of a 7.9% decrease. Additionally, orders excluding transportation rose by 0.2% during the reported month. US President Donald Trump's "Big, Beautiful Bill" was passed in the House of Representatives last week and is set to be voted on in the Senate this week. The sweeping tax cuts and spending bill are expected to add around £4 trillion to the federal primary deficit over the next decade and worsen the US budget deficit. Furthermore, traders have increased their wagers for at least two 25 basis points (bps) interest rate cuts by the Fed this year following the release of softer-than-expected US inflation figures earlier this month.
Investors will monitor the Federal Reserve Bank of Minneapolis President Neel Kashkari's speech and FOMC minutes for further insights on the NZD/USD exchange rate.
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