Political Influence Exerts Downward Pressure On The Euro

US policy tailwind drives GBP/USD

The Pound Sterling (GBP) traded sideways on Thursday, struggling to find clear direction due to a lack of UK data. Despite this, deferred Bank of England (BoE) rate cut bets have supported GBP exchange rates. Markets now anticipate only one interest rate cut from the BoE this year, underpinning Sterling sentiment. KPMG's Chief UK Economist, Yael Selfin, indicated that persistent high service sector inflation and tentative signs of labour market cooling suggest the MPC will wait for more data before initiating a rate cut.

The GBP/USD pair maintains a negative bias for the second straight day, hovering around the mid-$1.2700s. Fresh selling pressure on the Japanese Yen, triggered by the Bank of Japan's inaction, has lent some support to the USD, weighing on GBP/USD. However, signs of easing US inflationary pressures keep hopes alive for a September Fed rate cut, potentially capping the USD and providing a tailwind for the currency pair.

Major Data:Consumer Inflation Expectations: Prev, 3%

Political uncertainty drives EUR/USD below $1.0720

The EUR/USD pair has experienced increased downside risks, with potential to fall towards $1.0500. Julius Baer, a Bloomberg Finance L.P., has downgraded the Euro's rating to Bearish amid a significant selloff linked to rising political uncertainty in the Eurozone, particularly in France. A snap election and rumors of President Macron's resignation have heightened market anxiety, with French bond yields surging relative to German bonds. The increased demand for higher returns on French government debt signals investor concern over political stability.

Moody's has warned that France's elections could negatively impact its Aa2 rating, potentially shifting the outlook to 'negative' if debt metrics worsen. Technically, the EUR/USD has been consolidating between $1.0400 and $1.1200, according to Julius Baer’s analysis. With EUR/USD remaining heavy under $1.0750, the political situation in France is likely to exert further downward pressure on the Euro in the coming weeks.

Major Data:

Consumer Price Index (EU norm) (YoY)(May: 2.6%

9:00 (GMT)?ECB's De Guindos speech

9:00 (GMT)?ECB's Lane speech

USD regains strength following lower than expected PPI data

The GBP/USD pair edged lower near $1.2760 after three consecutive sessions of gains, influenced by the recovery of the USD Index (DXY) above the 105.00 barrier. This shift is driven by the US Federal Reserve's signal of a single 25 basis point rate cut towards the end of 2024, despite easing inflation. The US Producer Price Index (PPI) rose 2.2% YoY in May, slightly below market expectations, while core PPI figures remained unchanged.

Additionally, initial jobless claims increased to 242K for the week ending June 6, surpassing the consensus of 225K. These factors, combined with weaker-than-expected US economic data, have lifted the Greenback across the board, creating headwinds for GBP/USD. Traders are now focusing on the preliminary US Michigan Consumer Sentiment report and a speech by Fed President Austan Goolsbee for further direction.

Major Data:

Michigan Consumer Sentiment Index(Jun): Exp, 72