Americas Summary and Highlights 27 May
The USD had a choppy profile against the EUR and JPY in holiday thinned Americas trading.
The JPY has held onto marginal gains in Europe in holiday thinned trading with the U.S. and UK on holiday today.
North America
The EUR was not really hurt by ECB Villeroy suggesting that the ECB should not rule out a July cut after the widely expected June 6 cut, which had prompted a decline in EUR bond yields on Monday. GBP did gain ground versus the EUR monday, with the ECB expected to move ahead of the BOE.
Elsewhere, the AUD and CAD gained ground in quiet Americas trading, as sentiment remains positive towards commodities and this is spilling over to commodity currencies. Additionally, sentiment towards China is becoming less negative and this is also helping sentiment.
Europe Session
BOJ Ueda comments have helped to underpin the JPY, as speculation grows about additional BOJ normalisation. However, the market is not getting overdone with the next 10bps hike in the BOJ policy rate nearly discounted for July rather than the June 14 meeting – though we see the move arriving in June. The G7 statement on Saturday did not prompt a reaction, as the statement on FX volatility did not change and Japan remains on its own re the JPY.
No FX reaction to a key FT interview with ECB Lane, though bond yields edged lower. ECB Lane guidance that the 1 rate cut is pretty certain and will be followed by gradual moves to reduce policy restriction is of interest. Though the market expects the ECB to cut key rates by 25bps on June 6, debate exists over whether 2024 will see 2 or 3 cuts in total. Lane comments are more leaning towards 3, as he points to more controlled wage tracker data. He also noted that the neutral rate was 2.0% or just above, which suggests that 3 rate cuts would still leave policy restrictive this year.