Europe Summary and Highlights 16 May
The USD was generally firmer through a quiet European morning session.
The USD was generally firmer through a quiet European morning session. EUR/USD dropped 20 pips to trade below 1.12 and USD/JPY gained 30 pips to 145.55. The EUR was firmer on the European crosses against GBP, CHF and SEK but slightly weaker against the NOK.
There was no data of major significance, but the Eurozone trade surplus for March was much larger than expected at EUR36.3bn – the largest ever surplus. The EU surplus with the US was particularly large at EUR40.7bn, but looks to have been due to a tariff related surge in exports, which were up 60% on the previous year, so is likely to be reversed. Otherwise, there was little news of note, with Italian HICP inflation revised down slightly to 2.0% in April.
Asia session
The Q1 Japan GDP has shown a contraction of 0.2% q/q, slightly worse than our estimate as private consumption shows no growth. What is worth noting is that the data is before the latest Trump's tariff in April, when the Japanese economic growth will be more negatively affected, suggesting a poor Q2. The U.S. and Japan is estimated to resume another round of trade deal negotiation by the end of month. Japan FM Kato says that he will seek to have a meeting with Bessent, discuss FX and other matters. A second reference to "discuss FX' in a short period of time and keep JPY bids hopeful. USD/JPY is trading 0.32% lower at 145.16.
The RBNZ 2 year inflation expectations has risen to 2.29% from 2.06%. 1yr inflation expectation also rose to 2.41% from 2.15%. It indicates that while RBNZ is clearly on a further easing path, they will be facing inflationary pressure in the coming year that could derail the current trajectory if inflation flares up early. NZD/USD jumped higher and is trading 0.44% higher at 0.5903. AUD/USD also dragged 0.32% higher at 0.6426 while USD/CAD slips 0.12%. Else, EUR/USD is up 0.25% and GBP/USD is up 0.16%.