Federal Reserve and U.S. Economic Data

The Federal Reserve is expected to maintain its current interest rates at 5.25%-5.50% in their upcoming meeting on Wednesday, June 12. The rate futures market indicates just one potential cut of 25 basis points this year, likely in November or December, influenced by the recent strong U.S. jobs report. Markets are keenly awaiting the Fed's statement and news conference, particularly the FOMC economic projections. Key data releases this week include CORE US CPI and CORE PPI.

Bank of Japan's Policy and Economic Indicators

The Bank of Japan will deliberate on raising rates, though a Reuters poll suggests 53 out of 54 economists anticipate no rate change in June. However, 88% expect yields to reach at least 0.2% by the end of the year. The market will closely watch the tone of the BOJ's statement, press conference, and any guidance on bond buying. Significant data points include the final GDP and PPI figures.

China’s Inflation Data

China is set to release its May inflation data on Wednesday. According to a Reuters poll, consumer inflation is expected to hold steady at 0.3%, while producer prices are predicted to decrease by 1.8% year-over-year, a slower decline compared to April's 2.5% drop. Additionally, May credit data is anticipated, with new yuan loans expected to increase significantly from April's figures.

Australia's Employment Data

Australia's employment data for May, due on Thursday, will be crucial for shaping Reserve Bank of Australia rate expectations. Persistent inflation and a tight labor market are reinforcing the central bank's stance on maintaining higher rates for an extended period.

New Zealand and Canada Data

New Zealand will release food price data, which will influence inflation expectations. No major data releases are expected from Canada this week.

European Markets and ECB Ramifications

Following last week's European Central Bank (ECB) rate decision, traders will assess the impact of the recent European Parliamentary elections, where far-right parties saw significant success, prompting France to call a surprise election. Key data points include EZ industrial production due on June 13.

United Kingdom Economic Data

The UK will release jobs data on June 11, followed by a comprehensive data release on June 12, including GDP, industrial production, and construction output. The dollar index saw a 0.7% rise following an unexpected strong non-farm payroll and average hourly earnings report, despite a rise in the jobless rate. This led to a surge in Treasury yields and reduced expectations for Fed rate cuts ahead of the U.S. CPI report and the Fed meeting conclusion. The dollar gained notably against risk-sensitive currencies such as the Aussie, kiwi, and Mexican peso, which also faced political concerns.

Currency Movements and Market Reactions

• EUR/USD: Fell 0.78%, nearing last week's low, influenced by a significant rebound in 2- and 10-year Treasury yields, weakening bund-Treasury yield spreads by about 7 basis points. The market is now digesting the implications of the ECB's recent rate cut and revised inflation and growth projections.
• USD/JPY: Rose 0.6%, testing significant technical levels. Upcoming CPI data could lead to further movement depending on the Fed's announcement and press conference outcomes.
• GBP/USD: Fell 0.5%, approaching key moving averages. Upcoming UK labor data and U.S. CPI data will be crucial for the pound's near-term direction.

In summary, the dollar strengthened significantly after robust U.S. payroll and earnings data, leading to a rebound in Treasury yields. This strength was particularly pronounced against risk-sensitive currencies, while the euro and sterling experienced pressure. The upcoming U.S. CPI data will be critical in shaping the Fed's policy direction, with the ECB's recent rate cut and updated projections adding to the complexity. Upcoming labor data in the UK will also be closely monitored. Overall, major currencies' near-term outlook will be heavily influenced by these key economic indicators and central bank responses.

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