Forex News

BNY’s Bob Savage flags softer Australian activity, with manufacturing PMI only marginally in expansion as new and export orders fall and cost pressures stay intense. The Melbourne Institute inflation gauge dipped on fuel, while national home values were flat, with Sydney and Melbourne declining. Markets price limited further Reserve Bank of Australia (RBA) tightening as consumer sentiment and housing momentum weaken.

Weaker activity and softer housing

"Australia’s manufacturing PMI eased to 50.7 points in May from 51.3 in April, remaining marginally in expansion territory but masking weaker underlying conditions across the sector."

"Inflationary pressures remained intense, with input costs rising at the second-fastest pace in almost four years and output price inflation accelerating to its highest level since August 2022."

"Australia’s Melbourne Institute monthly inflation gauge fell in May after two consecutive m/m rises."

"Australian home values were unchanged nationally in May, in the first flat m/m result since January 2025."

"The market is reluctant to price in more than one additional hike for the rest of the year amid further signs of caution in household sentiment, especially if housing costs continue to ease."

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

Commerzbank’s Tatha Ghose highlights that the Polish Zloty has underperformed CE3 - Polish Złoty (PLN), Czech Koruna (CZK), and Hungarian Forint (HUF) - peers in 2026, with political risk overshadowing macro fundamentals. The National Bank of Poland (NBP) has shifted from a data-driven easing cycle to a forced pause as the Iran war and higher Oil prices lift inflation risks. Fiscal interventions and political uncertainty keep PLN risk premia elevated, with EUR/PLN and USD/PLN seen on a mild medium-term depreciation path.

Politics and energy shock weigh on PLN

"The Polish zloty entered 2026 as the top underperformer among CE3 currencies, with political risk firmly dominating macro fundamentals."

"The National Bank of Poland’s (NBP) earlier pivot toward easing was credible and data-driven, anchored in disinflation and stable expectations. Some policymakers have made clear statements that the March rate cut was the last for this year, with no scope for further easing in the near term as inflation risks rise again."

"In this environment, NBP is best described as being on hold – not because inflation is fundamentally above-target, but because uncertainty around the war and energy markets precludes further easing, especially when the government is having to implement fuel price caps to curb inflation."

"In the near term, the zloty faces additional downside pressure from elevated global risk aversion toward emerging markets and the uncertainty surrounding the oil price shock."

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

• EUR/USD pulls back after rejection at 1.1660 and remains trapped within the last two weeks' range.
• Rising US-Iran tensions and higher Oil prices are undermining risk appetite on Monday.
• Eurozone data confirms a slowdown in manufacturing activity in May, with unemployment steady.

The Euro (EUR) prints minor losses against the US Dollar (USD) on Monday, with momentum indicators pointing to fading bullish strength after rejection at the recent range top of 1.1660. Mixed Eurozone data, rising tensions in the Middle East, and higher Oil prices are acting as headwinds for the common currency

Iran's Foreign Minister Abbas Araghchi posted on X earlier on Monday that the ceasefire between the US and Iran constitutes a truce on all fronts, including Lebanon, and that a violation of this agreement on one front will be considered a violation on all fronts.

These remarks come after the US and Iran exchanged strikes, and Israel ramped up its operations in Lebanon over the weekend, casting doubt about a negotiated end to the conflict. Oil prices have appreciated by more than 3% from last week's close.

In Europe, May's HCOB Manufacturing Purchasing Managers’ Index (PMI) was revised up to 51.6, from the previously estimated 51.4, although it remains below April’s 52.2 level. Later on, Eurostat data revealed that the Unemployment Rate remained unchanged at 6.3% in April, against expectations of a decline to 6.2%.

In the US, the ISM PMI is expected to show levels consistent with the healthy expansion of the sector’s activity. The main focus this week, however, will be on a string of employment releases, including Friday’s Nonfarm Payrolls report, which are likely to provide further insight into the US Federal Reserve’s (Fed) monetary policy.

Technical Analysis: Capped below the 1.1660 range top

EUR/USD trades at 1.1646, with indicators on intraday charts showing a faltering momentum. The 4-hour Relative Strength Index (RSI) is drifting towards the 50 line, while the Moving Average Convergence Divergence (MACD) line is about to cross below the Signal line, which is a bearish sign.

On the topside, the May 18, 27, and 28 highs at 1.1660 keep holding bulls despite last week's false break. Above here, the May 14 high, at 1.1720, and May's peak, in the 1.1790 area, emerge as the next targets.

Downside attempts are likely to be tested at Friday's lows, at 1.1625, ahead of the range bottom, in the 1.1575 area.

(The technical analysis of this story was written with the help of an AI tool.)

Societe Generale analysts underline that USD/JPY has rebounded after defending a multi-month ascending trend line and 200-day moving average near 155. The pair is edging toward the April high at 160.50/160.70, seen as crucial resistance. A break of first support at 158.70 could trigger a deeper decline despite ongoing support from higher US yields.

Crucial 160.50/160.70 cap in focus

"USD/JPY defended a multi-month ascending trend line around 155, which is now also the 200-DMA. A gradual rebound has been witnessed after this test."

"The pair is inching towards April high of 160.50/160.70, which is a crucial resistance."

"It will be important to observe whether the pair can overcome this hurdle."

"First support is located around last week low of 158.70. There could be risk of a deeper decline if this is breached."

"Spot bid for fourth day on higher US yields, retest of 160-handle could provoke new intervention. MoF spent ¥11.7tn on defending the Yen last month."

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

Brown Brothers Harriman’s (BBH) Elias Haddad argues that Sweden’s benign inflation and spare capacity support an extended Riksbank hold. While the central bank projects its policy rate at 1.75% until late 2026, swaps price a more aggressive tightening path. Haddad believes market expectations can adjust lower toward the Riksbank’s guidance, leaving the Swedish Krona (SEK) under pressure.

Market hikes seen too aggressive

"Sweden May CPI is due Thursday. CPIF is expected at 1.3% y/y (Riksbank forecast: 1.6%) vs. 0.8% in April while CPIF ex-energy is projected at 0.3% y/y (Riksbank forecast: 0.9%) vs. 0.0% in April."

"Sweden’s benign inflation backdrop alongside ample spare capacity in the economy argue for an extended Riksbank hold."

"In March, the Riksbank penciled in the policy rate to remain at 1.75% until Q4 2026, followed by a first full 25bps hike to 2.00% by Q1 2028. The swaps curve is more aggressive and price in 43bps of hikes in the next twelve months."

"In our view, the swaps curve has room to adjust lower towards the Riksbank’s more subdued tightening path which remains a headwind for SEK."

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

Rabobank’s Senior FX Strategist Jane Foley expects EUR/USD to stay largely range-bound near key moving averages as markets await clarity on a potential US-Iran deal and US data that could shift Federal Reserve (Fed) expectations. Foley sees scope for safe-haven US Dollar (USD) demand in the near term, but anticipates a gradual EUR/USD recovery over 3–6 months, with EUR/USD 1.20 remaining a challenging target due to Eurozone growth risks.

Range trading with constrained upside

"EUR/USD traded with a slight upside bias through the last week or so of May and is currently positioned just below the 50-, 100- and 200-day smas, with the latter situated at 1.1682. From a technical perspective, a break above these levels could encourage further buying of the currency pair. However, given that the market is awaiting news regarding a deal between the US and Iran in addition to US economic data which could sway investors’ expectations regarding Fed policy, it seems more likely that the currency pair will trade sideways awaiting fresh fundamental factors."

"Last week, Rabobank revised its geopolitical outlook and now sees risk of no re-opening of the Strait of Hormuz for up to 3 months. On the back of this view we continue to see risk of safe haven USD buying on a 1-month view that could push EUR/USD towards the 1.15 level. We then expect EUR/USD to push higher on a 3-to-6-month view."

"However, we maintain the outlook that a push to EUR/USD1.20 could be a struggle for the single currency this year given Eurozone growth risks."

"This suggests that any break higher in EUR/USD this week may need the trigger of a positive development with respect to the end of the war. At the same time, in view of uncertainty regarding the Fed outlook, the market may be wary of driving EUR/USD much higher ahead of the release of Friday’s US May labour report."

"While an October rate cut from the Fed should allow EUR/USD to trend upwards in H2, we don’t expect the currency pair to gain significant upward traction in this period. The market is already well priced for two ECB rate hikes in this period and, in Rabo’s view, growth headwinds in the Eurozone are likely to ensure that EUR/USD1.20 remains a high bar."

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

• USD/JPY strengthens at the start of the week as risk appetite deteriorates amid escalating tensions in the Middle East.
• Concerns about the economic impact of higher energy prices weigh on the Japanese Yen.
• Investors await the US ISM Manufacturing PMI and key labor market data later this week.

USD/JPY trades around 159.50 on Monday at the time of writing, up 0.13% on the day, as the US Dollar (USD) benefits from renewed safe-haven demand amid a worsening market sentiment backdrop.

The Greenback is supported by rising geopolitical tensions in the Middle East. Recent clashes between the United States (US) and Iran have revived concerns about the durability of the current ceasefire, while Israel has intensified its operations in Lebanon. This environment fuels risk aversion and boosts demand for the US Dollar.

At the same time, higher Oil prices are increasing concerns about Japan’s economic outlook. The country remains heavily dependent on energy imports, making its economy particularly vulnerable to supply disruptions through the Strait of Hormuz. These concerns continue to keep the Japanese Yen (JPY) near multi-week lows against the US Dollar.

Data released in Japan on Monday provided little support to the domestic currency. Corporate Capital Spending was flat in the first quarter after expanding by 6.5% YoY in the previous quarter, pointing to a slowdown in investment momentum.

On the monetary policy front, several Bank of Japan (BoJ) officials continue to support the case for a gradual normalization of policy. The Summary of Opinions from the April meeting showed that a majority of policymakers favor a rate hike in the near term while warning about persistent inflation risks. According to MUFG, markets are now pricing in roughly an 80% chance of a 25-basis-point rate increase at the June 16 meeting.

In the United States (US), attention is turning to a busy week of macroeconomic releases. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) is due later on Monday, ahead of a series of labor market reports throughout the week. Friday’s Nonfarm Payrolls (NFP) report will be the key event for investors and could provide fresh clues about the future path of the Federal Reserve’s (Fed) monetary policy.

The combination of a US Dollar supported by geopolitical risks and a Japanese Yen pressured by concerns over rising energy costs continues to favor a bullish bias for USD/JPY. However, fears of a potential intervention by Japanese authorities could limit further gains in the pair.

BNY’s Bob Savage notes that the US Dollar (USD) is firmer, with US Dollar Index (DXY) slightly higher as bond yields rise and risk sentiment turns cautious. Former Fed Chair Jerome Powell, now a governor, strongly defended Federal Reserve (Fed) independence in Boston, warning that political interference in policymaker removal or regional president appointments could undermine confidence in US monetary policy.

Dollar firm as Powell defends Fed

"The new month starts with mixed risk sentiment."

"Former Federal Reserve (Fed) Chair Jerome Powell used a public speech in Boston to deliver a strong defense of Federal Reserve independence, arguing that the central bank’s credibility would be at risk if any administration gained the ability to remove policymakers over disagreements on monetary policy."

"Speaking after returning to his role as a Fed governor, Powell stressed that legal protections shielding Fed officials from political interference are essential to preserving confidence in U.S. monetary policy and noted that the executive branch has no role in selecting or overseeing regional Federal Reserve Bank presidents."

"His remarks come as the U.S. Supreme Court is expected to rule on President Trump’s attempt to remove Fed Governor Lisa Cook, a case that could have significant implications for the institution’s independence."

"Powell also emphasized the importance of preserving the Fed’s authority over the appointment of regional presidents, warning that institutional safeguards built over decades can be weakened quickly if political influence expands."

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

Iranian Foreign Minister Seyed Abbas Araghchi warns of serious consequences, in a post on X, formerly known as Twitter, that the United States (US) and Israel would face serious consequences if there were any military action across all fronts, including Lebanon.

“A ceasefire between Iran and the United States constitutes, without any ambiguity, a comprehensive ceasefire across all fronts, including Lebanon. Any violation of this ceasefire on one front shall be considered a violation of it across all fronts. The United States and Israel bear responsibility for the consequences of any breach of the truce,” Araghchi wrote.

Market Reaction

There seems to be a slight negative impact on S&P 500 futures from Iran Araghchi's warning against US and Israel attacks on all fronts, including Lebanon. S&P 500 futures drop marginally, but are still 0.2% higher to near 7,600 ahead of US markets opening.