Forex News

Rabobank’s Senior Macro Strategist Teeuwe Mevissen reports that Eurozone growth indicators have deteriorated, with French and German PMIs signaling contraction and the German IFO near a five-year low. The European Commission has cut its GDP projections and raised inflation forecasts for the EU and Eurozone. Mevissen stresses the policy dilemma for the ECB and expects only one 25 bps rate hike versus market pricing of more than two.

Soft data clash with sticky price pressures

"Yesterday’s release of French preliminary May PMI data showed a plunge in the composite number to 43.5 from 47.6 the previous month, with weakness evident in both the manufacturing and the services sectors."

"The German PMI data was less of a shock but with a composite number reading 48.6, the economy is continuing to show signs of contraction. While this morning’s German IFO release was a little better than expected, it remains close to a 5-year low."

"Yesterday’s release of the spring forecasts from the European Commission reflected the growing pessimism regarding the economic toll of the Iran war."

"The EC’s forecast for inflation in the EU has been revised a full percentage point higher to 3.1% in 2026."

"This morning the market is priced for a little more than two 25 bps ECB rate hikes on a 6-month view. Rabobank has pencilled in just one for now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

United States (US) Secretary of State Marco Rubio said on Friday that they would all love to see an agreement with Iran but added that they are "not there yet," per Reuters.

"There needs to be a plan B if Iran refuses to reopen the Strait of Hormuz," Rubio added and noted that there was no concrete ask of NATO help on the strait. He also reiterate that Pakistan remains the "primary interlocutor" in Iran talks.

Meanwhile, citing a source with knowledge of the matter, Reuters reported that Qatar has sent a negotiating team to Tehran, in coordination with the US to help secure a deal to end the war.

Market reaction

Wall Street's main indexes are up between 0.5% and 0.7% on the day, while the US Dollar (USD) Index holds steady above 99.20 following these headlines.

Commerzbank reports Copper has fallen about 5% from mid‑May highs, mainly on higher risk aversion from rising Oil prices. Yet China’s April Copper output dipped 4.5% month-on-month and mining news from Chile and Indonesia point to weaker supply growth. Cochilco cut Chile’s 2026 production outlook, while Grasberg is not expected to reach full capacity until end‑2027.

Weaker mine output supports prices

"Copper has fallen by about 5% from its mid-May high."

"China’s copper production in April was 4.5% lower than in March and thus only 3% higher than a year earlier."

"News from the mining sector also supported prices: Chile’s copper commission, Cochilco, has revised downward its outlook for mine production in the leading supplier country, citing low ore grades and operational difficulties following disappointing first-quarter figures: Production expectations for this year were revised down by 2% to 5.3 million tons."

"For next year, however, Cochilco expects a slight recovery of 4% to 5.5 million tons."

"Mine production in Indonesia is also disappointing, as the resumption of production at the world’s second-largest copper mine, the Grasberg Mine, is proceeding more slowly than hoped, and full capacity is not expected to be reached until the end of 2027."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann expect USD/JPY to trade intraday between 158.80 and 159.25 after a brief pop to 159.34 failed to strengthen momentum. On a 1–3 week view, the bank retains a positive stance but warns that a break below 158.40 would turn the outlook neutral, while a close above 159.25 could open 159.70. Over 1–3 months, upside beyond 159.45 is seen as limited below 162.00.

Dollar-Yen holds firm near recent highs

"24-HOUR VIEW: Yesterday, we expected USD to “trade between 158.40 and 159.10.” Our view was incorrect, as USD popped to a high of 159.34 and then dropped quickly to end the day little changed at 158.96 (+0.03%). The brief advance did not result in any increase in upward momentum. Today, we expect USD to trade between 158.80 and 159.25"

"1-3 WEEKS VIEW: We turned positive on USD early last week. On Tuesday (19 May, spot at 158.80), we highlighted that “short-term upward momentum is starting to fade, and USD must break and hold above 159.25 before further gains are likely.” Yesterday (21 May, spot at 158.85), we highlighted that “upward momentum continues to slow, and a breach of 158.40 (‘strong support’ level) would shift the outlook for USD from positive to neutral.” While USD subsequently popped above 159.25 (high of 159.34), it pulled back to close at 158.96 (+0.03%). In other words, we continue to hold the same view. Looking ahead, should USD close above 159.25, it could open up the way for a move to 159.70."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• EUR/GBP trades near more than one-week lows as the British Pound outperforms despite weak UK Retail Sales data.
• Stronger German IFO and GDP data fail to lift the Euro amid concerns over slowing Eurozone growth and rising inflation pressure.
• Cautious comments from ECB President Christine Lagarde add to pressure on the Euro.

EUR/GBP trades on the back foot on Friday and is set to end the week in negative territory, as the British Pound (GBP) outperforms most major peers despite weaker-than-expected UK Retail Sales data, while upbeat German economic data fails to provide meaningful support to the Euro (EUR). At the time of writing, the cross is trading near more than one-week lows around 0.8635.

Data released earlier on Friday showed Germany’s IFO Business Climate Index rose to 84.9 in May from 84.5 in April, beating market expectations of 84.2 and signaling improving business sentiment in the Eurozone’s largest economy.

The IFO Current Assessment gauge climbed to 86.1 from 85.4 previously, while the Expectations Index edged up to 83.8 from 83.5. Additional data showed Germany’s GfK Consumer Confidence survey for June improved to -29.8 from -33.1 in the previous month.

Meanwhile, Germany’s final Q1 Gross Domestic Product (GDP) reading confirmed the economy expanded 0.3% QoQ and 0.4% YoY.

In the United Kingdom, Retail Sales fell 1.3% MoM in April after rising 0.6% in March, marking a steeper decline than the 0.6% drop expected by markets. On an annual basis, Retail Sales growth slowed to 0% from 1.4% previously, missing forecasts for a 1.3% increase.

The Euro remains under pressure as rising energy prices linked to ongoing Middle East tensions continue to fuel concerns over the Eurozone’s heavy dependence on imported energy. Data released earlier this week showed inflation pressures accelerating across the bloc while business activity weakened sharply, reinforcing fears of slower economic growth.

The Euro also struggled to gain support after cautious remarks from European Central Bank (ECB) President Christine Lagarde, who reiterated that policymakers would continue to follow a “data-dependent, meeting-by-meeting approach.” Lagarde added that long-term inflation expectations remain broadly well anchored and stressed that the ECB would take the necessary measures to maintain price stability at its 2% target.

Chris Turner at ING says EUR/CHF is effectively being driven by European Central Bank (ECB) expectations, as the Swiss National Bank (SNB) is seen keeping policy unchanged despite some tightening priced in. Softer Eurozone data could limit ECB hikes and pressure EUR/CHF below key support levels. The SNB’s tolerance line near 0.90 and Switzerland’s relatively resilient energy profile also shape the cross’s downside.

SNB on hold leaves cross ECB-driven

"It seems clear that the Swiss National Bank is not going to do anything with monetary policy anytime soon. Earlier in the year, the debate was whether it needed to take its policy rate – now at 0% – into negative territory. With the oil price spike, that flipped expectations towards SNB tightening and indeed 20bp of tightening is priced in by year-end."

"We cannot see the SNB tightening this year at a time when it says it wants to intervene more intensively against the strong Swiss franc."

"With SNB policy going nowhere, EUR/CHF is therefore being dragged around by the ECB tightening story. If the next chapter sees softer eurozone activity data raising questions over how much the ECB really needs to tighten after all, then EUR/CHF risks are skewed lower."

"Under 0.9125/35, EUR/CHF can drift under 0.9100. But 0.90 remains the line in the sand for the SNB."

"It's worth remembering as well that Switzerland has some of the least fossil fuel-intensive industries in Europe, suggesting the economy may perform better relative to European peers this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

DBS Group Research economist Radhika Rao notes that the Reserve Bank of India (RBI) has revived monetary operations as the Rupee approached a record low near 97 per US Dollar (USD). The central bank announced a sizeable USD/INR buy/sell swap to manage liquidity and forward premiums, while signalling a broader toolkit including potential rate hikes, FX swaps and special deposit schemes to stabilise the currency.

RBI deploys swaps and policy signals

"The Reserve Bank of India revived monetary operations to slow rupee’s descent, after the currency came within touching distance of a record low of 97/USD this week."

"A USD/INR buy/sell swap worth ~$5bn was announced, which will manage rupee liquidity and moderate forward premiums."

"While rupee’s initial correction was viewed as a shock absorber to better reflect underlying macro shifts, authorities are concerned that unchecked FX depreciation could reinforce additional currency weakness, rather than helping to rebalance the external accounts."

"The narrative also turned cautious, with the central bank signaling an all-out effort to stabilise the currency including exploring potential rate hikes, further tranches of currency swaps, special non-resident deposit scheme and foreign currency debt to draw inflows and backstop the currency."

"Closer scrutiny of outbound FDI and encouraging exporters to channel proceeds to the onshore markets might be pursued."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Rabobank's Senior US Strategist Philip Marey notes that Kevin Warsh may initially avoid pushing for immediate rate cuts, instead laying out an analytical framework to justify resuming pre-war easing later in 2026. Marey highlights the supply‑shock nature of current inflation, the importance of anchored expectations, and Warsh’s controversial AI‑driven productivity argument, which several FOMC members reportedly doubt.

Supply shock narrative to justify cuts

"A sensible approach for Warsh would be to refrain from pushing for rate cuts in June and July, but instead introduce the analytical framework that will allow the FOMC to resume its prewar path of rate cutting later in the year."

"If the current surge in inflation is purely a supply shock, the Fed should be able to look through the high headline inflation figures and focus on core inflation and inflation expectations. If core inflation picks up substantially and inflation expectations become unanchored, then inflation pressures could become persistent."

"However, if we see only a modest rise in core inflation and long-run inflation expectations remain stable, the Fed could resume its pre-war interest rate path, which was sloping downward."

"In fact, the FOMC appears susceptible to this argument. At the March 18 post-meeting press conference, Powell said that looking through inflation caused by the energy price shock would be dependent on inflation expectations remaining anchored and the fact that inflation has been above target for five years."

"Warsh may have more difficulty selling his AI argument for cutting rates. He thinks that the boost to productivity caused by artificial intelligence will outweigh the increase in aggregate demand and therefore reduce inflationary pressures."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)