Forex News

• EUR/JPY rises toward 185.85, supported as the ECB is expected to raise interest rates this month.
• Eurozone Retail Sales decline in April, but markets continue to anticipate ECB monetary tightening.
• Prospects of a BoJ rate hike and FX intervention risks continue to limit the cross's upside potential.

EUR/JPY trades around 185.85 on Thursday at the time of writing, up 0.12% on the day. The cross is supported by the Euro (EUR) as investors expect the European Central Bank (ECB) to deliver another interest rate hike at its June meeting.

The latest Eurozone economic data presents a mixed picture. Services and Composite Purchasing Managers Index (PMI) figures for May were revised higher on Wednesday, although they remain in contraction territory. At the same time, April’s Producer Price Index (PPI) confirmed persistent inflationary pressures, reinforcing expectations that the ECB could continue its monetary tightening cycle after June’s hike.

Data released on Thursday, however, pointed to weaker consumer demand. Eurozone Retail Sales fell by 0.4% MoM in April, following a revised 0.8% increase in the previous month and compared with market expectations for a 0.3% decline. On an annual basis, Retail Sales growth slowed to 1% from 2.1% previously. Despite these mixed figures, investors continue to price in a 25-basis-point rate hike at the next ECB meeting.

A Reuters poll of economists showed that the European Central Bank is expected to raise its deposit rate to 2.25% in June, with another increase likely in September. However, analysts at BNY argue that a more hawkish ECB stance may not necessarily translate into sustained gains for the Euro.

On the Japanese side, the Japanese Yen (JPY) remains supported by growing expectations that the Bank of Japan (BoJ) will continue normalizing monetary policy. BoJ Governor Kazuo Ueda said on Wednesday that the central bank’s basic stance remains to continue raising interest rates in line with economic, inflation, and financial developments. Meanwhile, Japan’s Finance Minister Satsuki Katayama reiterated that authorities stand ready to intervene in the foreign exchange market if necessary.

These factors continue to cap EUR/JPY gains despite improving sentiment toward the Euro. Investors remain cautious about the possibility of intervention by Japanese authorities should the Japanese Yen weakness intensify further.

BNY’s Geoff Yu highlights that the ECB is heading into its blackout period with a rate hike effectively locked in, as Eurozone households’ 12‑month inflation expectations remain above 3%. However, he warns against treating this as a repeat of 2022, stressing that services PMIs show contracting demand and that households are already tightening via weaker consumption.

Households tighten as ECB prepares

"The ECB enters its pre-decision blackout period today."

"Given that anchoring inflation expectations is central to the Governing Council’s mandate, a hike on Thursday is all but confirmed."

"Nonetheless, we believe the Governing Council should not automatically see this as a repeat of 2022, and any attempt to draw immediate parallels risks further policy error."

"A key point of debate – which is already happening for the Bank of England – is whether the tightening already priced in has helped tighten financial conditions and “bought” central banks some time as household expectations shifted."

"The latest round of services PMIs confirms this view, with almost every single Eurozone economy showing a contraction, indicating a sharp decline in household demand as cost-of-living pressures weigh."

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

Silver prices (XAG/USD) rose on Thursday, according to FXStreet data. Silver trades at $73.35 per troy ounce, up 0.84% from the $72.73 it cost on Wednesday.

Silver prices have increased by 3.18% since the beginning of the year.

The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, stood at 60.90 on Thursday, down from 60.97 on Wednesday.

(An automation tool was used in creating this post.)

Societe Generale strategists note USD/JPY trading just below 160 as hawkish comments from BoJ Governor Ueda fail to support the Japanese Yen (JPY). They highlight a sharp rebound in the 2-year UST/JGB spread and warn that a break higher in yields could extend Dollar strength. Massive option expiries around key strikes may temporarily anchor USD/JPY price action.

Yen weighed by wider rate spreads

"On any other day the hawkish signalling by BoJ governor Ueda may have helped the Yen to catch a break at 160/USD, but not this time."

"The 2y UST/JGB spread has reversed 50% of the drop since Jun-25 (333bp to 212bp). A break of 270bp opens 281/285bp."

"The Yen is cheap from a valuation and fundamental perspective but with monetary policy only just skirting the bottom end of the neutral range at 1% (if the BoJ hikes this month), the central bank and MoF face a quasi-impossible task to turn the trend if Kevin Warsh nods to market pricing on the 17th. The $74bn of dollar sales between 28 April and 27 May by the BoJ has literally been water off the duck’s back. "

"The short JPY base has expanded to 26% from OI [Open Interest] compared to a net long position before the Iran conflict. Massive option expiries around 159.00-90 ($11.4bn), 160.00 ($3bn) and 160.01-80 ($2.8bn) today may anchor price action in the near term."

"Beware of a bullish breakout if Treasuries are spooked by payrolls."

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

• Dow Jones futures gain as investors weigh Middle East diplomacy against disappointing tech earnings and a resilient labor market.
• The ceasefire hinges on Hezbollah stopping fire, but Israel intends to continue fighting in southern Lebanon.
• Wednesday's broad market sell-off was triggered by disappointing corporate earnings, which heavily pressured investor sentiment.

Dow Jones futures advance 0.22% above 50,900, while S&P 500 futures fall 0.28% to near 7,550. And Nasdaq 100 futures plunge 0.5%, trading near 30,480 during the European hours on Thursday, ahead of the US regular opening.

US stock futures remained mixed as investors carefully weighed tentative diplomatic developments in the Middle East against disappointing tech earnings and a resilient US labor market.

While Israel and Lebanon agreed to a renewed ceasefire during US-led talks in Washington, market skepticism runs high. The agreement hinges on a "complete cessation" of fire by Iran-backed Hezbollah, but Israel has already indicated it will continue fighting in southern Lebanon. This divergence from Washington’s diplomatic narrative, coupled with recent direct exchanges of strikes between the US and Iran, has heightened geopolitical risks, undermining peace hopes and stoking fresh concerns about inflation.

Disappointing corporate earnings heavily pressured market sentiment on Wednesday, leading to a broad sell-off. The Dow Jones fell 1.21%, the S&P 500 lost 0.74%, and the Nasdaq 100 declined 0.89%. The weakness was most pronounced across the technology and semiconductor sectors, where major players, including Intel, AMD, Palantir, and Qualcomm, all posted notable losses, dragging the broader indexes down with them.

Investors’ caution increases amid rising expectations that the Federal Reserve (Fed) will maintain a hawkish monetary policy stance. Stronger-than-expected US labor data, including the May ADP private payrolls and JOLTS job openings, signaled that the job market remains highly resilient. These robust economic indicators are prompting traders to increase their bets that the Fed will keep interest rates higher for longer, or potentially even raise rates later this year, to keep inflation in check.

Deutsche Bank’s Henry Allen and colleagues highlight that Brent Oil has reversed earlier gains as reports of a conditional ceasefire between Israel and Lebanon eased some geopolitical risk. However, they stress that the Strait of Hormuz remains blocked and Polymarket odds show rising scepticism about a quick return to normal traffic, keeping longer-dated Brent futures elevated and inflation concerns alive.

Geopolitics keep Brent risk premium

"The geopolitical headlines have become slightly more positive this morning, with oil prices falling back after the US said that Israel and Lebanon agreed to a ceasefire. That ceasefire is conditional on Hezbollah also stopping fighting, but in theory, the news helps to take out a key sticking point in the US-Iran talks that was holding up a deal."

"So that’s seen oil prices reverse a run of three consecutive gains, with Brent crude down -0.96% to $96.87/bbl. And given the news, the 10yr Treasury yield (-1.4bps) has also fallen back to 4.48%."

"Before that, markets had already struggled yesterday, as growing doubt about a US-Iran peace deal pushed Brent crude (+1.89%) up for a third consecutive session, closing at $97.81/bbl. And with the Strait of Hormuz still blocked and no clear sign of a resolution, there were even mounting expectations about a potential Fed rate hike this year, with market pricing for that up to 81% by the close."

"And it was clear investors were pricing the longer conflict scenarios as well, with the 6-month Brent crude future (+1.07%) up to $86.91/bbl."

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