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May 21 - 05:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Listless As Fed Minutes Loom

By Paul Spirgel  —  May 21 - 01:50 PM

USD index held firmer on Tuesday but off early session highs after Fed Governor Christopher Waller reiterated that the next move by the U.S. central bank is unlikely to be a hike.

Wednesday’s Fed minutes will be a key focus but given recent comments by policymakers highlighting persistent inflation but also keeping hikes off the agenda could leave markets in a holding pattern for more U.S. data to provide direction.

Falling Canadian inflation reported on Tuesday may prod the BoC to join the rate-cutting community as early as June.

After the CPI data, LSEG’s IRPR page indicates June cut odds at 56%, with a full cut priced in for July.

Traders will be eying Wednesday’s UK CPI keenly for hints that the BoE may move more dovishly.
IRPR now projects 50% odds for a 25bp BoE rate cut in June.
A soft CPI release could open the way for BoE cuts in June and August.

EUR/USD was down 0.03% at 1.0853, off session highs at 1.0875, though near the May 16 peak at 1.0895 as more-hawkish Fed expectations continue to recede.

Recent upbeat euro zone data has also diminished 2024 ECB rate cut expectations, providing incremental boosts for the EURO.

USD/JPY dipped 0.1% to 156.11 in NorAm afternoon trading.
U.S.-Japan rate differentials are still heavily skewed in the dollar's favor, but the less-hawkish lean by Waller has seen some USD selling, with support building just below 156.

GBP/USD eked out a 0.03% rise to 1.2708.
The pair put in a new two-month high at 1.2727, extending its streak of higher highs and lows despite market expectations of a further drop in UK inflation.

Risks are skewed to the downside if UK inflation slows as forecast.
A surprise to the downside may open up the way to the May 9 low at 1.2446.
Should June cut odds rise significantly, a pullback to the April 22 low at 1.2299 may be on the cards.

Bitcoin held a 0.5% gain at $69.8k, well off the session high at $72k.
BTC continues to follow ethereum higher.
ETH rose 7.1% to $3,742 as traders prepare for an ETF registration that is expected to boost demand for the cryptocurrency further.

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Refinitiv IFR Research/Market Commentary


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