Instimatch - FX morning update - 17/6/25

Good morning

During the European session Germany’s ZEW for June will be the main indicator to watch with the consensus still seeing a further improvement, though some of the response will have come in ahead of the Middle East escalation. ECB’s Villeroy and Centeno are scheduled to speak. Recent comments from Governing Council members indicate strong support for Lagarde's signal of increased caution in policy calibration. 

US data will take centre stage with the release of the retail sales data for May. We already know that auto sales volumes were down heavily in May, which will drag down the headline retail growth rate, while a soft ISM report suggests manufacturing is receiving little benefit from the current trade tensions. The consensus is looking for a 0.6%m/m contraction in the headline figure, but still a 0.2% rise ex autos. Other data to watch are the import prices as well as industrial production.

Geopolitical tensions and developments continued to whipsaw markets, with Brent Oil prices weakening during the US session to as low as $71/bl, before rallying morning Asia time close to $ 75/bl. The earlier declines in oil prices and improvement in risk sentiment were initially driven by a Wall Street Journal article saying Iran is signalling it wants to de-escalate hostilities with Israel and negotiate its nuclear program, although news articles also mentioned that Iran will not agree to talks until Israel stops it’s bombing. These market moves reversed as Trump called for Tehran’s evacuation, highlighted that there could be more developments in the Middle East, and amidst reports that Trump has left the G7 summit early.

The USD index fell slightly in Asian trade to 98.13, extending mild declines.

EUR/USD opens the European session steady around 1.1560, still within touching distance of its recent high of 1.1631.  The Euro receives support from improved risk sentiment.

GBP/USD continues to hold steady above $1.3550 at around $1.3570 ahead of this week’s key data/central bank event risks before positioning for the next leg of a directional move. EUR/GBP also holds steady trading around 0.8515 with news of the signed trade deal between the US and UK being discounted already. Tomorrow’s UK inflation numbers and Thursday’s BoE meeting are more important GBP-drivers. Especially if they provide leeway to extending the quarterly cutting cycle.

The Bank of Japan maintained its policy rate at 0.5%, signalling a deceleration in JGB purchases from JPY400bln per quarter to JPY200bln per quarter starting April 2026.  Both outcomes aligned with market expectations, and the BOJ retains the option to increase bond buying in case of a rapid rise in long-term interest rates. Focus is now on an address by BOJ Governor Kazuo Ueda, who had warned earlier in June that the BOJ will keep raising interest rates if sticky inflation persists. The yen experienced minimal impact, with USD/JPY trading at 144.5 this morning.

Asian currencies generally took their cue from global markets and the Dollar. The oil sensitive Asian currencies with current account deficits such as INR and PHP have continued to underperform, while we had outperformance in the undervalued currencies with current account surpluses such as TWD and KRW.

China released its monthly data yesterday, and among the key data points retail sales came in much stronger than expected at 6.4%y/y. At least some of this could have been boosted by temporary factors such as the cash-for-clunkers program. USD/CNY rose slightly to 7.1808.

Meanwhile, India released its trade deficit data for May which came in smaller than expected at $22bn from $26bn the previous month.

 The details were quite good, with lower oil imports, moderate gold imports, coupled with a pickup in consumer and capital goods imports signalling a potential improvement in domestic demand. At risk of stating the obvious, the path moving forward will be dependent on oil prices and risk sentiment for India. USD/INR pair added 0.2% to around 86.032.