FX UPDATE 17/06/2024

The Euro was trading over one-month lows on Monday as trader uncertainty heightened on European political turmoil. Investors have been assessing the potential for a budget crisis in the euro area's core, as far-right and leftist parties gain ground leading up to France's unplanned parliamentary election, putting pressure on President Emmanuel Macron's centrist government. Despite a severe sell-off in French financial markets late last week, European Central Bank policymakers have indicated to Reuters that they currently have no intention to consider emergency purchases of French bonds. At the time of writing, the single currency fell 0.1% to $1.0699, after declining to its lowest since 1st May on Friday at $1.06678. Last week, the Euro suffered its largest drop since April at 0.88%. “With traders wanting certainty, this may not come until after the second-round vote (7th July), so the prospect of further downside in French and EU markets is real,” said Chris Weston, head of research at Pepperstone.

Elsewhere, the dollar index, measuring the currency against six peers, remained at its highest since 2nd May, mainly fuelled by Euro weakness. Indeed, the Euro “accounts for around 57% of the US Dollar index weighting, the fall of the Euro has indirectly benefited the Dollar,” according to City Index senior market analyst, Matt Simpson. Minneapolis Federal Reserve President Neel Kashkari stated on Sunday that it was a “reasonable prediction” for the Fed to reduce interest rates once this year, with the expectation that it would occur in December.

In addition, Sterling edged down 0.1% to $1.267 at the time of writing. UK inflationary pressures seem to remain too high for the Bank of England to consider cutting rates at its meeting on 20th June. A majority of economists surveyed by Reuters predict that the first rate cut will not occur until 1st August.

In Japan, the Yen remained near a 34-year low against the Dollar following the Bank of Japan's decision on Friday to scale back bond purchases and outline its tapering plan, which will be discussed further at its July policy meeting. Governor Kazuo Ueda indicated that he would consider raising interest rates in July due to the Yen's weakness, which is leading to higher import costs. However, this may not be as hawkish a statement as some have interpreted it to be, according to Hiroyuki Machida, director of Japan FX and commodities sales at Australia & New Zealand Banking Group. “The sense was that raising rates and tapering are two separate things” that the Bank of Japan would decide whether or not to carry out depending on different criteria, he said. The Yen held steady at 157.49 at the time of writing after falling to 158.26 following Friday’s decision.