Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
ECB cuts, cautiously
The European Central Bank joined the Bank of Canada as the second major central bank to cut interest rates this week by dropping their main refinancing rate by 25bps to 4.25% overnight.
Unusually, the ECB actually raised inflation forecasts for 2025 – from 2.0% to 2.2% – and as a result the central bank was less inclined to signal further rate cuts. An increase in inflation forecasts would usually see a central bank less likely to cut rates.
With less guidance for future cuts, the euro actually gained on the news, with EUR/USD up 0.2%.
US jobs due
The US dollar was mostly weaker in other markets, with the AUD/USD up 0.4% and NZD/USD up 0.1%.
The USD/JPY fell 0.2% while USD/CNH was up 0.1%.
Tonight, all eyes are on the critical US jobs report. Financial markets are still reeling after last month’s job report missed forecasts for the first time in seven months and other US labour market data – such as Tuesday’s JOLTS report – has also weakened.
According to Refinitiv, financial markets are looking for 185k new jobs – up from the 175k reported last month – with the unemployment rate forecast to remain steady at 3.9%.
Another weak number, however, could be significant, and could see the USD index break below support at 104.00 and fall to the lowest level since mid-March.
RBI pause likely; INR moderately bullish
At the June policy meeting, we anticipate that the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will vote 5-1 to pause, with external member Prof. Jayanth Varma likely to continue dissenting in favor of policy rate decreases.
Dr. Ashima Goyal, an external member, has voted in favor of a policy hold thus far, although she has also backed policy relaxation.
In keeping with its “withdrawal of accommodation” posture, we expect the MPC to be equally split (5-1), with the majority of members viewing the stance as a forward-looking indicator for policy rates and a show of the RBI’s sincerity about controlling inflation.
Because the macro fundamentals are strong, we have a moderate amount of bullishness towards the INR.
Euro broadly unchanged after rate cut
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 3 – 7 June
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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