Forex News
- WTI declines despite elevated US inflation, as markets focus on hopes for a diplomatic solution with Iran.
- Negotiations between Washington and Tehran remain active, reducing immediate fears over Oil supply disruptions.
- Investors now await further geopolitical developments and next week's Federal Reserve decision.
West Texas Intermediate (WTI) trades around $89.50 on Thursday at the time of writing, down 0.86% on the day, as investors trim positions following the recent rally driven by Middle East tensions. Despite renewed rhetoric between Washington and Tehran and stronger-than-expected US inflation data, the Oil market is facing profit-taking as prospects for a diplomatic agreement remain alive.
According to several media reports, negotiations between the United States (US) and Iran over a permanent peace agreement remain ongoing despite the recent military strikes. A diplomatic source cited by CNN said that talks remain active, while The Wall Street Journal reported that US President Donald Trump conveyed a message to Tehran through Qatar indicating that the latest attacks did not represent a return to full-scale war.
This perception of a more limited immediate threat to global supply is weighing on Oil prices, even as the geopolitical backdrop remains highly tense. Earlier on Thursday, Donald Trump stated that the United States would hit Iran "very hard" overnight and raised the possibility of taking control of Kharg Island, Iran's main Oil export terminal. Kharg Island accounted for roughly 90% of Iran's Crude Oil exports before the conflict, highlighting its strategic importance.
Meanwhile, US data continues to point to a tight Oil market. The Energy Information Administration (EIA) reported on Wednesday that US commercial Crude Oil inventories fell by 7.2M barrels last week, a much larger draw than the 4M barrels expected by analysts. The decline marks another week of shrinking US stockpiles and underscores the strength of physical demand.
Market participants are also monitoring the macroeconomic implications of rising energy prices. The Producer Price Index (PPI) increased by 6.5% YoY in August, exceeding market expectations, while the Consumer Price Index (CPI) accelerated to 4.2% YoY. This persistent inflation is fueling debate over the Federal Reserve's next policy moves.
According to market pricing, the Federal Reserve (Fed) is expected to leave interest rates unchanged at next week's meeting. However, investors are increasingly considering the possibility of another rate hike later this year if energy-driven inflationary pressures continue to build. Against this backdrop, developments in the US-Iran conflict remain the key short-term driver for Oil prices.
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Commerzbank notes that USD/TWD has risen for five consecutive sessions to 31.68, driven by foreign equity outflows as global tech stocks correct. Taiwan’s exports and imports are surging on AI-related demand, while CPI has moved above the central bank’s 2% target. Even so, the CBC is expected to keep its policy rate unchanged at 2% at the upcoming meeting.
Equity outflows and CPI lift USD/TWD
"May exports jumped 51.7% yoy (Bloomberg consensus: 41.2%) vs 39.0% in April, marking the fifteenth consecutive month of double-digit growth. Integrated circuit exports surged 58.3% vs 40.5% in April, supported by robust demand for leading-edge chips used in AI-model training and token generation."
"Imports also surprised to the upside, rising 54.9% yoy (Bloomberg consensus: 40.3%) vs 29.2% in April. This was driven by firm investment momentum as capital goods imports rose 54.7% vs 33.3% in April. The May trade surplus widened to USD17.9bn (Bloomberg consensus: USD17.5bn) vs USD14.4bn in April."
"Looking ahead, inflation is expected to climb further. Headline inflation averaged 1.5% in the first five months of the year and the government is projecting 1.9% for this year."
"May CPI was slightly higher than expected at 2.2% yoy (Bloomberg consensus: 2.1%) vs 1.7% in April. It climbed above the Central Bank of the Republic of China’s (CBC) 2% inflation target for the first time since March 2025."
"In FX, USD/TWD rose 0.1% to 31.68 yesterday, rising for the fifth consecutive session driven by foreign equity outflow. On a net basis, foreign investors had sold USD8.8bn of equity in the first three days of the week. The TAIEX is down 4.1% so far this week due to a global tech sell-off. Year-to-date, TWD is down 0.8% vs the USD compared to the average for Asian currencies ex-Japan of 2.8%."
"On monetary policy, the CBC is expected to keep the policy rate unchanged at 2% at the next meeting on 18 June. Despite the recent pickup in inflation, policymakers have signaled comfort with the current monetary policy stance. CBC Governor Yang Chin-long noted that headline CPI remains relatively stable and that a momentary breach of the 2% target does not necessarily warrant a rate hike."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- DJIA clawed back part of Wednesday's selloff before fading on hot inflation data and fresh Iran escalation.
- Headline PPI accelerated past consensus while the core measure missed and jobless claims rose.
- Threats to seize Kharg Island keep the energy passthrough alive days before the Fed's June meeting.
After Wednesday's near 2% drubbing, the Dow Jones Industrial Average (DJIA) spent Thursday doing something stranger than falling: very little. A 6.5% YoY Producer Price Index (PPI) print, rising jobless claims, and a President promising to seize Iran's main oil terminal added up to a close only fractionally lower, which says plenty about how numb this tape has become.
The session was anything but calm, with an early dip below the 50,000 handle bought hard and the index running to the 50,350 area through the European morning. The 12:30 GMT data dump knocked it back toward 50,100, and a New York-open spike just shy of 50,400 was sold within minutes, leaving the Dow near 50,200 at the close.
An inflation report built for arguments
The headline numbers were ugly: producer prices rose 1.1% MoM for a second straight month, lifting the annual rate to 6.5% against a 6.4% consensus and 5.7% prior. The core gauge told a different story, adding 0.4% MoM against 0.5% expected and holding at 4.9% YoY when forecasters looked for 5.4%. Initial claims rose to 229K versus 219K expected.
Bulls are leaning on the core miss as proof that underlying disinflation survived the war, which is a thin branch one day after the Consumer Price Index (CPI) printed 4.2% YoY, its fastest pace in three years. When energy is the entire inflation problem, and the energy shock is a function of a war the White House keeps promising to widen, stripping it out is accounting rather than analysis. Add creeping claims and the mix smells distinctly stagflationary.
Kharg Island enters the chat
The President spent Thursday morning pledging that the US military would hit Iran very hard overnight and would, in due course, take Kharg Island and other oil infrastructure, with Venezuela invoked as the template. Reporting citing administration sources describes frustration that this week's strikes are not being read as forceful enough. Kharg handled roughly 90% of Iran's Crude Oil exports before the war, so the threat targets the regime's last revenue artery.
The market filed it under posture, and not without reason; within hours the same President told an interviewer he was unsure America had the stomach for the operation, and Crude Oil futures eased toward $89. With the Navy already blockading Iranian ports and the Strait of Hormuz largely shut, seizing the island adds occupation risk without reopening the chokepoint that matters. The PPI is the standing counterargument: posture or not, the energy damage is already in the data.
New chair, hot data, no easy answers
Rate futures price next week's Federal Open Market Committee (FOMC) decision as a near-certain hold, and the live debate has quietly inverted; markets now entertain a hike later this year rather than a cut. The June 16 to 17 meeting delivers a fresh dot plot and the first decision under new Federal Reserve (Fed) Chair Kevin Warsh, who inherits 4.2% CPI, 6.5% PPI and a war premium no model handles cleanly. Equities choosing the dovish core-miss read over the hawkish headline is a choice, not a verdict.
Friday preview: Michigan and the expectations problem
Friday's calendar centers on the preliminary June University of Michigan (UoM) survey at 14:00 GMT, where consensus sees headline sentiment near 46 from 44.8 and the expectations index around 44.3. Those are recession-grade levels of gloom, so the inflation lines matter more than the direction.
The 1-year inflation expectations measure enters at 4.8% and the 5-year at 3.9%, and with pump prices chasing the war higher, the risk sits to the upside. A 5-handle on the 1-year reading, four days before the FOMC, would feed the hike chatter directly. Friday also hosts the largest stock market debut on record.
The levels that matter
Resistance: Sellers capped the morning advance around 50,350 on repeated attempts, and the cash-open spike to just shy of 50,400 lasted minutes. Bulls have no real claim until the index closes above that rejected high.
Support: Dip buyers defended the 50,100 area through the afternoon. Below that sits the 50,000 handle, with Thursday's early low printed just under 49,950; a daily close back beneath the round figure would turn this stabilization into a one-day wonder.
Bias: Neutral with a defensive lean. Intraday momentum on the Stochastic Relative Strength Index (Stoch RSI) is mid-range and rising into the close, enough for another probe higher, but the index remains boxed between roughly 50,100 and 50,350 while promised overnight strikes, Friday's inflation expectations data and a record listing all argue for more volatility rather than less.
Dow Jones 5-minute chart
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
- USD/JPY trades near 160.50 as intervention fears limit further gains.
- Renewed US-Iran tensions support safe-haven demand for the US Dollar.
- Elevated Oil prices and a wide Fed-BoJ interest rate gap continue to weigh on the Yen.
USD/JPY struggles for direction on Thursday as fears of intervention by Japanese authorities cap upside, even as the US Dollar (USD) strengthens amid renewed hostilities between the United States and Iran.
At the time of writing, the pair is trading around 160.50, a level that previously triggered intervention from Tokyo in late April. Japanese authorities have repeatedly signaled their readiness to take decisive action against excessive and disorderly currency moves.
On the geopolitical front, US President Donald Trump warned of further strikes against Iran as tensions escalated earlier this week after Tehran downed a US Apache helicopter near the Strait of Hormuz.
However, diplomatic efforts remain underway. Reuters reported on Thursday, citing Iranian and Western sources, that Tehran and Washington are still exchanging messages over the details of a memorandum of understanding, including mechanisms for the release of frozen Iranian funds.
The latest flare-up has cast doubt on the durability of the ceasefire announced in April and dented hopes for a near-term peace deal. This keeps geopolitical risks in play and supports safe-haven demand for the US Dollar.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 100.23, its highest level since April 6.
The Greenback is also drawing support from hawkish Federal Reserve (Fed) expectations as the inflation outlook deteriorates amid the ongoing energy shock.
Data released on Thursday showed the Producer Price Index (PPI) rose 6.5% YoY in May from 5.7% in April, above market expectations of 6.4%. Meanwhile, data released on Wednesday showed Consumer Price Index (CPI) inflation accelerated to 4.2% from 3.8%, the highest level since April 2023.
Still, underlying inflation pressure remained relatively contained. Core PPI held steady at 4.9% YoY in May, below the 5.4% forecast, while Core CPI edged up to 2.9% from 2.8%.
Apart from US Dollar strength, elevated Oil prices remain a drag on the Japanese Yen (JPY) in the near-term, given Japan's reliance on imported energy from the Middle East.
Meanwhile, the BoJ's gradual approach to policy normalization keeps the interest rate gap with other major central banks wide, a persistent headwind for the Yen.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
- AUD/USD declines for the third consecutive day and hits a two-month low.
- US PPI rose 6.5% YoY in May, while annual Core PPI held at 4.9%.
- US Initial Jobless Claims increased to 229K but remain consistent with a resilient labor market.
The AUD/USD pair trades near the 0.6980 level on Thursday, hovering near a two-month low as the Australian Dollar (AUD) remains pressured by cautious market sentiment and renewed US Dollar (USD) demand. At the time of writing, the pair trades at 0.6994, down 0.15% on the day.
The Greenback found support after the latest United States (US) Producer Price Index (PPI) data highlighted persistent inflation pressures. Headline PPI rose 6.5% YoY in May, above the previous print of 5.7% and surpassing consensus at 6.4%. Core PPI, which excludes food and energy, rose 0.4% MoM in May, below the previous 0.7% and the forecast 0.5%.
On an annual basis, Core PPI held steady at 4.9% YoY, indicating that underlying price pressures remain elevated and reinforcing expectations that the Federal Reserve (Fed) could maintain a restrictive policy stance for longer.
Meanwhile, US Initial Jobless Claims increased by 4K to 229K, above expectations of 219K, while Continuing Claims rose to 1.795 million. Although claims edged higher, the labor market remains relatively resilient, limiting downside pressure on the USD.
Technical Analysis:
On the 4-hour chart, AUD/USD trades at 0.6988, maintaining a bearish near-term bias as the pair remains below both the 20-period Simple Moving Average (SMA) at 0.7025 and the 100-period SMA at 0.7120. The location below these key averages suggests rallies are likely to be sold, although the Relative Strength Index (RSI), hovering just above the 30 mark, hints that selling pressure is nearing oversold territory and that downside momentum may be losing some force.
On the topside, initial resistance emerges at 0.6995, followed by the day’s opening area near 0.7002; a sustained break above this band would be needed to ease immediate downside pressure and allow a test of the 20-period SMA at 0.7025, ahead of the more distant 100-period SMA at 0.7120. On the downside, nearby support is aligned at 0.6987, with a further floor at 0.6979; a clear drop through this zone would reinforce the bearish structure and open the door to a deeper decline in the coming sessions.
(The technical analysis of this story was written with the help of an AI tool.)
Standard Chartered economists Hunter Chan and Shuang Ding argue that higher Oil and AI-related goods prices have lifted China’s import prices and PPI, ending a multi-year deflation spell. However, they stress that China’s export prices have risen more slowly than import prices and key trading partners, so China remains a disinflationary force, with current cost-driven reflation likely milder than in 2021-22.
Export prices lag import cost pressures
"China’s import prices have been rising y/y since September 2025. Both industrial purchase prices and PPI turned positive in March and jumped in April and May, ending deflation that lasted for more than three years. The price increases were mainly driven by higher upstream metal prices and electronic product prices on higher global AI demand and petrol-related prices amid the Middle East conflict."
"Meanwhile, the official export price index rose to a near three-year high in April, raising concerns that China may start exporting inflation to the rest of the world. However, the rise in export prices has consistently lagged import prices in both timing and magnitude terms in recent years."
"The cost pass-through appears to be concentrated in upstream sectors. PPI inflation is much softer in manufacturing than mining and raw materials, and consumer goods PPI remains in deflation."
"China’s overall export price growth has also lagged that of key trading partners, indicating that its exports continue to mitigate global inflation. The exception is China’s IC export prices, which have outpaced IC import prices amid the global AI investment boom."
"Cost reflation is likely to be more moderate this time than during the 2021-22 reflation period, which was also characterised by higher oil and metals prices. For one, the current period does not share the ultra-low base of the previous period (due to COVID disruptions). Second, domestic demand is softer compared with the post-COVID global demand recovery, as indicated by declining manufacturing capacity utilisation rates."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
- US PPI tops forecasts as energy costs drive price pressures.
- Trump’s threats on Iran lift geopolitical risk and Oil volatility.
- BoE hike bets cushion Sterling before UK GDP figures.
The Pound Sterling (GBP) registers losses of 0.19% on Thursday after the latest US inflation report reflected the impact of the Iran war on producer prices, while an escalation of hostilities between Washington and Tehran triggered a recovery in Oil prices. At the time of writing, the GBP/USD pair trades at 1.3330 after peaking at 1.3391.
GBP/USD weakens as energy-led inflation revives Greenback demand
The Middle East conflict rattled the financial markets. US President Donald Trump said that he will hit Iran “hard” and that he considers taking Kharg Island. In the meantime, Tehran attacked US bases and is considering targeting Elon Musk’s companies, according to FARS news agency.
Data from the US showed that the Producer Price Index (PPI) rose by 6.5% YoY in May, exceeding the prior month’s 5.7% and estimates of 6.4%. Digging into the report, nearly 80% of the price surge is due to energy products. Core PPI, which excludes volatile items, rose by 4.9% YoY for the same period, below the consensus of 5.4% and unchanged compared to April’s.
Initial Jobless claims for the week ending on June 6 rose by 229K, exceeding the 219K expected by analysts.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of currencies, is up 0.10% at 100.18, boosted by the recovery of Oil prices. WTI, the US crude Oil benchmark, has trimmed some of its earlier losses after hitting a low of $88.63, trading near $90.36, down 1.50%.
In the UK, traders are eyeing the release of Gross Domestic Product (GDP) figures on Friday. The Pound Sterling has been supported by expectations of interest rate hikes by the Bank of England (BoE), with the swaps market pricing in 46 basis points of tightening by the bank, according to Prime Terminal.
The US economic schedule will feature the University of Michigan Consumer Sentiment survey, expected to improve from 44.8 to 46 in June’s preliminary reading.
GBP/USD Price Forecast: Technical outlook
In the daily chart, GBP/USD trades at 1.3341 with a bearish near‑term bias, holding beneath the cluster of simple moving averages around 1.3463 and below the reclaimed break point of the former rising trend line at 1.3411. The Relative Strength Index (14) around 40 points to soft momentum, suggesting sellers retain control while price remains capped under the descending resistance structure drawn from 1.3869, whose break level near 1.3564 now reinforces the overhead supply zone.
On the topside, initial resistance emerges at the broken rising trend‑line area around 1.3411, followed by the grouped simple moving averages near 1.3463, with the former downtrend break at 1.3564 and the 1.3869 origin of that line acting as higher resistance levels. On the downside, the main structural support is traced back to the origin of the current ascending trend line near 1.3159, where buyers would be expected to show more robust interest if the pair extends its decline.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | 0.21% | -0.05% | 0.44% | 0.15% | 0.24% | 0.00% | |
| EUR | -0.12% | 0.09% | -0.17% | 0.32% | -0.07% | 0.14% | -0.11% | |
| GBP | -0.21% | -0.09% | -0.26% | 0.23% | -0.14% | 0.05% | -0.20% | |
| JPY | 0.05% | 0.17% | 0.26% | 0.48% | 0.09% | 0.29% | 0.06% | |
| CAD | -0.44% | -0.32% | -0.23% | -0.48% | -0.38% | -0.16% | -0.43% | |
| AUD | -0.15% | 0.07% | 0.14% | -0.09% | 0.38% | 0.21% | -0.07% | |
| NZD | -0.24% | -0.14% | -0.05% | -0.29% | 0.16% | -0.21% | -0.25% | |
| CHF | -0.01% | 0.11% | 0.20% | -0.06% | 0.43% | 0.07% | 0.25% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
BNY’s Geoff Yu says Latin American currencies remain relatively resilient even as iFlow data show declining positions in high-yielders under a new Federal Reserve backdrop. He stresses that improved terms of trade, especially for Brazil and Chile, help offset rising Dollar preference, but warns that attracting fresh inflows may require more hawkish policy from regional central banks to maintain supportive real rates.
Exports and carry support regional currencies
"Our iFlow Carry indicator is pointing to declines in holdings in high-yielding currencies, and the process is likely to continue as markets adjust to a new Fed reality. Even so, we continue to distinguish between a steady reduction in carry holdings – the situation at present – and outright liquidation. LatAm currencies are the most resilient group in this context, but transmission of Fed rates is swift into the region, while political developments are also influencing investment flows, in both directions."
"That said, we shouldn’t discount the positive terms-of-trade shock to the region. For the likes of Brazil and Chile, export values have risen to multi-year highs due to the conflict and other structural factors (Exhibit 3). In contrast to much of Asia, these natural flows will help offset the rise in global dollar preference, but central banks will need to stay vigilant and ensure real rates adjust to new Fed dynamics."
"Rate decisions in Peru, Chile and Brazil over the next trading week should not yield any major surprises, but LatAm currencies will need to monitor elevated short-term dollar preference. USD rates aside, the need to generate dollar liquidity to fund share sales and U.S.-market offerings remains high, and the market may move toward higher-hanging fruits."
"In FX markets, LatAm carry trades and fixed income positions are the last expression of “risk-on”, particularly as cross-border dollar hedges have fully unwound the excess short positions built before the conflict. Yields and the policy outlook are now only sufficient to limit large-scale liquidation."
"But if the aim is to attract fresh inflows to ease onshore financial conditions, policy decisions may need to lean more hawkish."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
ING’s Min Joo Kang expects the Bank of Japan to deliver a 25bp rate hike in June, supported by resilient growth, negative real rates and upside inflation risks. Despite soft May inflation, underlying pressures and firm wages justify further normalisation. ING projects the policy rate rising to 1.50% by mid‑2027 and JGB10Y yields reaching 3.0% as tapering proceeds cautiously.
BoJ hikes and JGB yields seen higher
"The Bank of Japan is expected to deliver a 25bp hike at its June meeting. Despite Middle East uncertainty, resilient growth, negative real interest rates, and persistent upside risks to inflation justify BoJ rate hikes. There were already three dissenting votes in favour of a rate hike in April, and two others have since signalled support for further normalisation."
"While May inflation was quite soft at 1.4% YoY, this largely reflected government interventions and a high food-price base last year. Pipeline prices have climbed since March while the weak yen is expected to add more inflationary pressures. The BoJ is therefore likely to look through the current softness and instead focus on underlying inflation pressures that could build later this year."
"Firm wage growth is another reason to support the BoJ’s rate hikes. With growth near potential and inflation expected to remain around 2% through 2027, we expect the BoJ to raise its policy rate to 1.50% by the first half of next year."
"Meanwhile, the BoJ will also announce its latest JGB purchase plan at its June meeting. Currently, it is reducing purchases by 200 billion JPY per quarter through next March, but on the back of improved market functioning, the BoJ may pause tapering."
"Even if the BoJ pauses tightening from next April, its JGB holdings should continue to decline as redemptions remain sizeable. We expect this to help calm concerns about a sharp JGB sell-off and ease Prime Minister Sanae Takaichi’s opposition to further rate hikes. With the policy rate rising, JGB10Y yields are expected to climb, albeit at a moderate pace, reaching 3.0% by 2027."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
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