Instimatch - FX morning commentary - 13/6/25

Good morning

For today, the focus in the Eurozone is on industrial production data for April. Industrial production surged by 2.2%q/q in Q1, mainly driven by front loading of exports to the US from Ireland, which recorded a 32%m/m increase in February and 45%m/m in March. Excluding Ireland, production rose 1.0%, which is still stronger than late last year. April's data may be influenced by Ireland's volatility and US tariffs, warranting careful interpretation.

US releases preliminary consumer confidence for June from University of Michigan. It has taken a big hit in recent months but is expected to increase slightly on the back of lower oil prices and stronger equity markets. Focus will also be on inflation expectations, which increased sharply in recent months and moderated only slightly in May.

The big FX market mover both globally and in Asia this week was the weaker than expected inflation numbers from the US, with CPI rising 0.1%m/m and producer prices also rising a smaller than expected 0.1%. These were coupled with signs of softness in the US labour market, with continuing claims rising higher. With these developments, the US dollar has weakened meaningfully as markets priced in for more Fed rate cuts and risk sentiment improved, and led in the G10 space by strength in JPY and EUR, with EUR/USD in particular touching a fresh year high at 1.1630 yesterday before risk off sentiment has dragged the pair back lower to around 1.1530. Treasuries had another strong session with US10Y dropping firmly below 4.40%, while the Fed September contract indicates -25bp (week started at -17bp).

However, there has been a sharp rise in the crude oil price overnight, jumping above $73/bbl and equity futures firmly in red after Israel's strike on Iran, in a major escalation in the standoff over Iran’s atomic program. U.S. Secretary of State Marco Rubio said that Israel carried out its military action against Iran independently, citing self-defence as the driving motive behind the strikes. Iran's Armed Forces General staff responded on Friday, warning that Israel and the US will "pay a very heavy price".

The USD index after a volatile session opens the European session almost unchanged from the previous day around 98.30.

EUR/GBP rose notably during yesterday's session as weak activity data hit GBP FX. Monthly GDP data for April came in lower than expected, showing that the UK economy contracted by 0.3% m/m as manufacturing production and services posed a drag on growth. The data yesterday follows weaker than expected labour market data out earlier this week and highlights that the UK economy is experiencing more underlying weakness following a strong start to the year. While markets have increasingly converged to a view of two further rate cuts from the BoE this year, traders see risks further skewed to the downside. With slower activity and the scope for more aggressive BoE easing, which will be supporting the view a further move higher in EUR/GBP, consensus forecast at 0.87 in 6-12 months.

There was some reversal in risk-sensitive assets such as the Korean Won overnight, together with a rally in alternative safe havens such as gold, JPY and CHF. The spike in oil prices may also weigh on currencies which depend on oil imports such as INR and PHP, but with the starting level of inflation and current account deficits quite decent, it could take a sustained spike in oil prices to meaningfully change the trajectory of generally stronger Asia FX.