Forex News

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.)

Nordea's strategists Sara Midtgaard and Henrik Unell see scope for Euro (EUR) appreciation against the US Dollar (USD) as policy divergence grows. They expect the European Central Bank (ECB) to deliver more rate hikes than currently priced, while the Federal Reserve (Fed) remains on hold even if United States (US) inflation accelerates. In a scenario where Europe tightens and the US does not, Nordea argues the Euro could strengthen and the Dollar weaken.

ECB hikes versus static Fed underpin Euro

"A key driver behind the dollar’s appreciation in May has been the repricing of Fed expectations. Markets have moved from assigning some probability to rate cuts towards pricing in additional tightening. Our baseline case, however, remains that the Fed will keep rates unchanged over the next two years."

"At the same time, we expect the ECB to deliver a total of four rate hikes this year, compared with the roughly three hikes currently priced in by markets."

"Over time, market focus may shift if inflation in the US continues to accelerate without a corresponding response from the Federal Reserve."

"The growing divisions within the Fed could make the central bank less decisive in responding to higher inflation pressures, precisely because policymakers appear increasingly split between those who still view the next appropriate move as a rate cut and those who believe further hikes may eventually become necessary."

"However, this relationship may prove less straightforward if higher inflation in both the US and the euro area results in tighter monetary policy in Europe but not in the US."

"In such a scenario, the euro could strengthen and the dollar weaken."

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

• EUR/USD extends lows below 1.1600, and nears six-week lows at 1.1584.
• Uncertainty about the outcome of the US-Iran peace negotiations is weighing on risk appetite.
• The US Dollar picks up ahead of Kevin Warsh's swearing-in ceremony.

The Euro (EUR) extends losses against the US Dollar (USD) on Friday, right below 1.1600 at the time of writing and nearing six-week lows, at 1.1584. Contradicting messages from the Middle East overshadow a string of fairly upbeat German macroeconomic data, while the focus now shifts to the swearing-in ceremony of the next Federal Reserve Chairman, Kevin Warsh.

Risk appetite remains subdued on Friday as Tehran mulls the latest peace proposal submitted by the US. Investors are sceptical, as the stances on Iran’s nuclear activities and control of the Strait of Hormuz remain far apart, but comments by US Secretary of State Marco Rubio, highlighting “some progress” in the talks with Tehran, are keeping hopes alive.

On the macroeconomic front, data from Germany were supportive for the Euro. The final Q1 Gross Domestic Product (GDP), released earlier on Friday, confirmed that the economy grew at a 0.3% pace, steady from the last three months of 2025, while the annualised GDP was revised up to 0.4% from the previously estimated 0.3% growth.

Also on Friday, the CESifo Group revealed that the German IFO Business Climate Index improved to 84.9 in May, from an upwardly revised  84.5 in April, against expectations of further deterioration, to 84.2. Likewise, the sentiment about the current economic situation and the expectations for the next six months have improved beyond expectations, soothing concerns about the impact of the Middle East conflict on the Eurozone’s leading economy.

The US Dollar, on the other hand, is picking up heading into the swearing-in ceremony of former Federal Reserve (Fed) Governor Kevin Warsh as the central bank's Chairman. Warsh has a challenging task ahead, having to cope with the Bank's commitment to keep a fast-rising inflation under control, and Trump's pressures to ease interest rates. Before that, the Michigan Consumer Sentiment Index is expected to confirm that sentiment among US consumers fell to historic lows at 48.2 in May.