AWARDS
ING: THE EUR
The market is now fully pricing in a 25 basis point ECB interest rate hike on June 11 and a further 25 basis point hike on September 10. The ECB is likely satisfied with this stance, which keeps inflation expectations in check. In this case, the five-year inflation swap is contained at 2.15%, not far from the levels seen in February. This type of ECB rate stance may help protect against upcoming inflation data, with April's Producer Price Index (PPI) data, released today, expected to surge 5% year-over-year. Interestingly, we've received anecdotal reports that European companies have been much quicker to pass on input price increases this year than in 2022.
Following yesterday's solid JOLTS data, the EUR/USD has come under pressure. Another set of positive US data could push it back to its recent low of 1.1575. The euro remains subject to downside risks should oil prices rebound. The Gulf crisis is far from over, and every day of closure of the Strait of Hormuz brings us closer to the tipping point (some predict it will occur in September) where inventory reductions will no longer be sufficient to compensate for the halted production. In this regard, consensus forecasts a 3.3 million barrel draw in US oil inventories over the past week. A greater-than-expected decline could push oil prices higher and weigh on the EUR/USD exchange rate.
