European Summary and Highlights 22 May

European morning session

EUR/GBP dropped 20 pips in the European morning following the stronger than expected UK April CPI data. This showed a sharp drop in the headline CPI y/y rate to 2.3% from 3.2% in March, but the market had expected a drop to 2.1%. The core CPI rate dropped to 3.9% from 4.2%, but the market consensus was for a drop to 3.6%. Services inflation held at 6.0% y/y. This was seen as essentially eliminating the possibility of a June rate cut, with the probability of a cut now priced as around 15% from around 50% before the data.

The USD was generally a little firmer. EUR/USD dropped 10 pips to 1.0845 while USD/JPY rose10 pips to 156.45. The CHF was the worst performer, with USD/CHF rising 20 pips to 0.9135 while EUR/CHF made a new 1 year high at 0.9915.

Asia session

The RBNZ has decided to keep OCR at 5.5% in the May meeting but the OCR forecast in 2025 has been revised almost 25bps higher. By September 2025, the OCR forecast has been revised almost 25bps higher and around 3% by mid 2027. The revision seems to suggest the RBNZ is not looking for an imminent hike, rather OCR will be staying higher for longer.  NZD/USD initially jumped higher but gains were partially retraced as it does not suggest an imminent hike. NZD/USD is still trading 0.48% higher at 0.6120 with session high at 0.6153, AUD/USD is also dragged 0.11% higher at 0.6672 while USD/CAD slipped 0.1%.

The latest trade data from Japan suggest domestic demand is seeing a rebound with import back to positive territory. Export to China and U.S. continue to grow close to double digit but export to E.U. has contracted for April. Yet, domestic economics data has captured little JPY traders' eyeballs. U.S. Treasury and JGB Yields are both higher for the session with 10yr JGB inch distance from one percent. USD/JPY is trading 0.12% higher at 156.32. Else, EUR/USD is unchanged and GBP/USD is up 0.03%.