Forex News

Brown Brothers Harriman’s (BBH) Elias Haddad notes that GBP/USD has risen above pre-war levels as United Kingdom (UK) local and Scottish elections test Prime Minister Keir Starmer’s leadership. Haddad warns that a strong Green Party showing could push policy leftward and worsen fiscal concerns, with UK nominal Gross Domestic Product (GDP) growth running below 10-year gilt yields, posing a drag on the Pound (GBP).

Election risks and weak fiscal backdrop

"GBP/USD has rallied above pre-war levels. Today’s local and Scottish elections will test British Prime Minister Keir Starmer’s leadership."

"Starmer’s Labour Party is poised to get trounced when results start coming in early Friday morning."

"A strong showing from the Green party risks pulling the Labour government further to the left, raising concerns about UK fiscal credibility."

"Alarmingly, UK nominal GDP growth is tracking below 10-year gilt yields, making stopping debt growth very difficult which is drag on GBP."

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

Societe Generale analysts note that the National Bank of Poland (NBP) kept its policy rate at 3.75% and markets expect no further changes through 2026. Governor Glapinski’s press conference is expected to be uneventful unless he sounds very hawkish. EUR/PLN is drifting towards 4.22 after reversing its conflict-driven spike, while Polish bonds still trade well above pre-conflict yields.

Steady policy and bond lag

"In CEE [Central and Eastern European] , the NBP left its policy rate unchanged at 3.75% and markets are pricing no change from the NBP for the rest of 2026."

"NBP governor Glapinski’s press conference should be a non-event unless he comes across as extremely hawkish today."

"EUR/PLN is quietly drifting towards 4.22, fully giving up the ME [Middle East] conflict driven spike but the Polish bonds have a long way ahead for recovery with the 10y POLGB still about 65bp about the pre-conflict level of 4.92%."

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

BNY’s Geoff Yu notes that expectations of progress toward peace in Iran are driving a bond rally and shaping flows in the United States (US) Treasury market. As Oil prices fall and real rates reprice, he argues exporter surpluses and reserve management trends could again favor the US Dollar (USD). The report stresses that recent US real-rate selling reflects liquidity needs rather than fiscal or inflation fears.

Treasury flows and conflict repricing

"A true end to the Iran conflict may still be some way off, but the market is increasingly confident that this is the broader direction. Yesterday’s news of a potential memo to this effect has driven a strong move in bond markets. As oil prices decline and fears over inflation ease, we would naturally expect a decent move in bonds as real rates reprice globally, almost without exception."

"The U.S. Treasury market has also reacted strongly to hopes of an end to the conflict, just as the foreign vs. domestic gap is starting to close. On the real rates side, we stress that the sales seen through the last six weeks are still a function of liquidity needs rather than worries over U.S fiscal conditions or inflation-driven steepening, even though those factors will need to feature more heavily over the medium term."

"By default, if oil prices ease, exporter surpluses could rise from here and normal service will resume in reserve management trends, which will continue to heavily favor the dollar’s performance."

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

Nomura's research analysts report that the central bank of Norway, Norges Bank unexpectedly raised its policy rate by 25bp to 4.25% in May, citing frustration with sticky underlying inflation and a need to preserve credibility after earlier guidance. Nomura now expects no further rate hikes in 2026 and projects the next cut in September 2027, conditional on inflation slowing and NOK developments.

Norges Bank front-loads tightening on inflation

"Norges Bank raised its policy rate by 25bp to 4.25% at its May meeting, against our and consensus expectations. However, we had noted that the decision was a very close call and there was a high risk of a hike. Five of the 17 economists polled by Bloomberg expected a hike, and market pricing had suggested around a 50% probability of a 25bp hike (+13bp) going into the meeting."

"Norges Bank did not update its forecasts today but assessed that the monetary policy outlook does not appear to have changed materially since the March forecasts. Guidance highlighted that a further rise in the policy rate may occur this year, with Governor Ida Wolden Bache highlighting “the policy rate forecast presented in March implied the potential need for further tightening of monetary policy later this year.”"

"We believe the main reason Norges Bank raised its policy rate was that it lost patience with sticky underlying inflation. The governor noted in the press release that “inflation is too high and has run above target for several years”. Of course, price pressures from the Iran war add to the reasoning for a rate hike, but the governor also highlighted at the press conference that the rate rise is “not only due to war impacts” and that “wages have also increased markedly in recent years”, which have likely contributed to sticky underlying inflation."

"After today’s move, we expect no further change in the policy rate this year and continue to expect a September 2027 cut, as we forecast a slowdown in inflation to closer to 2.0% by then. This rate cut could occur earlier, especially if a stronger NOK adds to disinflation."

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