Today at 20:00 (GMT+2), the focus of investors and forex traders will be the Federal Reserve's most recent meeting minutes, which may indicate the central bank's next steps. Of particular interest will be the timing and magnitude of future interest rate adjustments — the rate was held at 3.50–3.75% at the last meeting, with most board members adopting a hawkish stance in response to accelerating inflation. Philadelphia Fed President Anna Paulson believes the current level of borrowing costs is appropriate, as it is exerting downward pressure on consumer prices, while the scenario of further monetary tightening remains on the table. It is also worth noting that the Senate approved by 50 votes to 47 a resolution limiting President Donald Trump's authority to continue military operations on Iranian territory, requiring the President to seek Congressional approval before resuming hostilities. Trump may veto the bill even if it subsequently passes the House of Representatives, but the very fact of its passage is strengthening market hopes for stabilization in the Middle East.
Eurozone
The euro is moderately weakening against its major peers — the yen, the pound, and the US dollar.
Investors are digesting inflation data: the Consumer Price Index eased from 1.3% to 1.0% month-on-month and rose from 2.6% to 3.0% year-on-year, while the core reading moved from 0.8% to 0.9% month-on-month and from 2.3% to 2.2% year-on-year. April wholesale inflation data from Germany — the eurozone's largest economy — also crossed the wires, showing the Producer Price Index slowing from 2.5% to 1.2% month-on-month but rising from –0.2% to 1.7% year-on-year, remaining above the ECB's 2.0% target amid the energy crisis driven by the escalating Middle East conflict. In this environment, the central bank may well decide to tighten monetary policy as early as its next meeting.
United Kingdom
The pound is strengthening against the euro, weakening against the US dollar, and showing mixed dynamics against the yen.
April inflation data came in below market expectations: the Consumer Price Index registered 0.7% month-on-month against a forecast of 0.9%, and fell from 3.3% to 2.8% year-on-year — a sharper decline than the 2.8% analysts had projected — while the core reading moved from 0.2% to 0.7% month-on-month and from 2.0% to 2.4% year-on-year. Analysts note that the slowdown in the annual rate was driven primarily by falling electricity and gas prices, which resulted from government support measures that reduced both variable and fixed tariffs. A Bank of England rate hike to 4.00% in the near term nevertheless remains a credible scenario, with most market participants expecting tightening to occur as early as the July meeting.
Japan
The yen is strengthening against the euro and showing mixed dynamics against the pound and the US dollar.
The Reuters Tankan business confidence index was released today: the manufacturing sector reading rose from 7.0 to 8.0 points, with the chemicals sector improving from –8.0 to 6.0 points and the metals sector recovering from –25.0 to 0.0 points. However, the positive momentum was offset by a decline in business confidence in the machinery sector from 20.0 to 10.0 points and in the food industry from –25.0 to –40.0 points. Analysts do not rule out a further deterioration in the data due to rising fuel costs and supply chain disruptions linked to the Middle East conflict. It is also worth noting the latest comments from Japanese Finance Minister Satsuki Katayama, who yesterday hinted at the possibility of fresh currency interventions, stating that officials stand ready to act at any moment in response to excessive yen volatility.
Australia
The Australian dollar is strengthening against its major peers — the euro, the pound, the yen, and the US dollar.
In the absence of major economic releases, price action is being driven by external factors. Investors are positioning ahead of Australia's labor market data due tomorrow at 03:30 (GMT+2): unemployment is expected to hold at 4.3% and employment to rise by 16,700, which would confirm the likelihood of monetary tightening by the Reserve Bank of Australia, as persistent price pressures are increasingly becoming the central bank's primary economic challenge. Most analysts forecast the key rate could reach 4.70% by December.
Oil
Oil prices have moved into a downward correction following the Senate resolution limiting President Trump's ability to unilaterally authorize further strikes on Iran. While the resolution is not binding on the Republican administration, it clearly illustrates the sentiment among lawmakers, who do not see a military solution to the Middle East crisis. Investors believe the move will help ease regional tensions.
On the other hand, a sharp decline in oil prices is being cushioned by a drawdown in US crude inventories: according to the American Petroleum Institute (API), stocks fell by 9.1 million barrels last week. The Energy Information Administration (EIA) report, due today at 16:30 (GMT+2), may also point to a decline of 2.1 million barrels — which could act as a catalyst for an oil price recovery.
