Overview
The ECB was on the hawkish side of expectations, but the EUR was unable to hold its initial gains, and the USD closed generally firmer.
North American session
EUR/USD flip-flopped around the ECB meeting. After a small initial dip it rose on the initial ECB statement, which committed to a 25bp hike in July and a likely 50bp move in September, and was seen as hawkish relative to expectations, pushing yields up across the curve. But EUR/USD peaked at 1.0774 and started to fall as the press conference got underway, dropping to 1.0645 by the European close, and eventually falling below 1.1620. There was some focus on the widening in the bund/BTP spread seen in the wake of the ECB announcement, and the lack of an explicit ECB announcement of a backstop support for peripheral bond markets with the end of APP buying. EUR/GBP initially bounced to .8590, but subsequently fell below .85.
Despite initial claims rising to 229k from 202k in the Memorial Day week, the USD was also firmer against other currencies. USD/CAD rose after the BoC Financial Systems Review highlighted high levels of mortgage debt and elevated house prices, although Governor Macklem later stressed fighting inflation was the BoC’s priority. Macklem did not prevent further USD/CAD gains, which tested 1.27. AUD/USD also fell in a generally more risk negative market, from .72 to .71. USD/JPY pushed back above 134 as yields rose.
Europe session
FX markets were quiet ahead of the ECB meeting. The USD was modestly softer, with USD/JPY continuing to correct lower from the 20 year high seen overnight, and the AUD managing a small bounce after overnight weakness. EUR/USD saw a brief dip below 1.07 but quickly returned to opening levels near 1.0715/20.
There wasn’t much data of note. Swedish production was weaker than expected in April, falling 0.6%, but orders remained strong, up 7.4% y/y. The Swedish current account surplus fell slightly in Q1 from Q4 but was still large at SEK57.5bn. EUR/SEK was lower on the morning, dropping around 4 figures to 10.49, though likely unrelated to the data.
Data
All Day - DE: Current Account (NSA) (Apr) (Prev: 18.8Bn)
06:00 GMT - NO: CPI MoM (May) (Mkt: -0.1% Prev: 1.2%)
06:00 GMT - NO: CPI YoY (May) (Mkt: 5.6% Prev: 5.4%)
06:00 GMT - NO: CPI Core YoY (May) (Mkt: 3.1% Prev: 2.6%)
06:00 GMT - NO: CPI Core MoM (May) (Mkt: 0.1% Prev: 0.9%)
07:00 GMT - ES: HICP MoM (May F) (Mkt: 0.7% Prev: 0.7%)
07:00 GMT - ES: CPI MoM (May F) (Mkt: 0.8% Prev: 0.8%)
07:00 GMT - ES: HICP YoY (May F) (Mkt: 8.5% Prev: 8.5%)
07:00 GMT - ES: CPI YoY (May F) (Mkt: 8.7% Prev: 8.7%)
08:00 GMT - IT: Industrial Production (WDA) (Apr) (Mkt: 0.1% Prev: 3%)
08:00 GMT - IT: Industrial Production (SA) (Apr) (Mkt: -1.1% Prev: %)
12:30 GMT - CA: Unemployment (May) (Mkt: 5.2% Prev: 5.2%)
12:30 GMT - CA: Employment Change (May) (Mkt: 27.5K Prev: 15.3K)
12:30 GMT - CA: Capacity Utilization (1Q) (Mkt: 83.1% Prev: 82.9%)
12:30 GMT - US: CPI (ex Food & Energy) (May) 4cast: 0.4% (Mkt: 0.5% Prev: 0.6%)
12:30 GMT - US: CPI (May) 4cast: 0.7% (Mkt: 0.7% Prev: 0.3%)
14:00 GMT - US: Univ of Mich Sentiment (Jun P) (Mkt: 58.2 Prev: 58.4)
