Instimatch - FX morning commentary - 30/5/25

Good morning

The US Dollar weakened, and Asian currencies strengthened, by and large reversing the sizeable moves seen after the court ruling yesterday blocking President Trump’s Liberation Day tariffs. Part of this market move also reflects weaker than expected US labour market data and consumption numbers. In particular, initial jobless claims rose 240k and continuing claims rose 1919k, both higher than expected, while the personal consumption component of US GDP was softer than expected at 1.2%. Meanwhile, the US Court of Appeals announced that it has reinstated the Trump’s tariffs temporarily, pending a ruling by the appeals court and likely to go all the way up to the Supreme Court, and this has also helped cement the Dollar weakness tone.

The dollar index was trading around 99.47 in Asian trade, recovering some ground from the previous day losses. A US cyclical slowdown is becoming more apparent in the data while the greenback still looks overvalued so overall a bearish bias remains. San Francisco Fed President Mary Daly said on Thursday that policymakers might cut interest rates twice this year, but rates should remain steady for now to ensure inflation is on track to reach the Fed's 2% target.

Spain, Germany and Italy will publish their CPI numbers for May. Consensus sees relatively benign readings for all three, giving the ECB plenty of ease to cut rates next week. From the US, we have the core PCE reading from April, which is expected to come down from 2.6% to 2.5%y/y – the lowest since 2021. With trade tensions remaining in focus, markets will want to wait for the coming months’ data before drawing conclusions about the impact of tariffs.

EUR/USD has failed to capitalise on the previous day’s solid recovery from around the 1.1200 region to currently trade around $1.1350.

GBP/USD retains a bullish bias with the pair trading within a $1.3470-1.3490 range, down around 0.15% overnight.  BoE policymaker Alan Taylor told the Financial Times (FT) on Friday, “I thought we needed to be on a lower [monetary] policy path.”

From Asia’s perspective, tariffs are likely to weigh on the region much more than others given the export-oriented nature of the economies as a broad generalisation, and as such traders continue to expect Asian FX underperformance against G10. 

Tokyo consumer price index (CPI) inflation stayed at 3.4%y/y in May, in line with market consensus. Yet core inflation, excluding fresh food, accelerated to 3.6% from 3.4%, beating the market consensus of 3.5%. Core inflation has accelerated quite sharply for four months in a row, from 2.2% in February to 3.6% in May. Japanese data continues to paint a mixed picture of the economy – output is contracting while there are increasing upside risks for inflation. The BoJ is likely to prioritise a 25bp rate rise in July. This will still depend on US tariff policies and whether sustainable wage growth continues next year.  The Japanese yen was among the better performers in Asia, USD/JPY fell around 0.3% to near 143.80.

Broader Asian currencies traded within tight ranges after a volatile trading week on U.S. trade tariff uncertainty. USD/CNY pair was steady overnight around 7.1895 even as U.S. Treasury Secretary Scott Bessent said trade talks with China had stalled after an initial agreement earlier in May. 

AUD/USD pair fell 0.3% to around $0.6425 after data showed April retail sales unexpectedly contracted - with any signs of a cooling economy giving the Reserve Bank more headroom to cut interest rates. 

South Korea’s industrial production drops (-0.5% in line with market consensus) as US tariffs take effect – these have hit the automobile sector the hardest.  USD/KRW rose about 0.4% to 1,377.35.

Meanwhile, latest news out of India seems reasonably positive and cordial on the trade deal front, with Bloomberg news reporting that a team of US officials will visit India next week to hammer out an interim trade agreement before July 9. The expectation is for a trade deal to be struck between India and US beyond the day-to-day uncertainty is a factor underpinning the view for USD/INR to grind lower to 83.50 by Q1 2026, coupled with lower inflation and more supportive domestic policies including rate cuts by RBI. USD/INR eased around 0.2% to 85.464 overnight ahead of GDP data for the March quarter