EUROPEAN FX UPDATE: FX markets in narrow ranges as geopolitical sway wanes

USD: DXY U/C: 98.15

• The news cycle remains fixated on the ongoing conflict between Iran-Israel. However, the latest reporting suggests that the US is looking to make a deal with Iran and will not be joining the Israeli offensive. This has helped calm some of the fears seen during Friday's trade, and absent another spike in the energy price, the conflict may have a limited impact on the USD going forward. Those hoping for a breakthrough on trade at the G7 summit have been left disappointed after Trump cut his visit short to head back to Washington. Albeit, Treasury Secretary Bessent is staying behind at the summit. For today's agenda, the main data highlight comes via retail sales for May, which is expected to contract by 0.7% (prev. +0.1%). BofA said that May's weakness in its spending data partly reflected declining gasoline spending, some payback from earlier tariff-related 'buying ahead', and the impact of poor weather. Attention thereafter will shift to tomorrow's FOMC policy announcement and SEP release; expected to be a placeholder meeting with the Fed in wait-and-see mode. DXY is currently tucked within yesterday's 97.68-98.36.

EUR: EUR/USD U/C; 1.1557

• EUR is flat vs. the USD as the pair struggles to hold above the 1.16 mark. In terms of recent newsflow, traders await any progress on the trade front between the EU and US after reports that leaders instructed teams to accelerate work on trade. However, in recent trade, US President Trump has stated that the EU is not yet offering a fair deal. Elsewhere, focus is on what impact/if any a sustained increase in oil prices could have on the inflation outlook in the Eurozone. German ZEW data saw a beat on expectations and improvement for both metrics with ZEW noting recent growth in investment and consumer demand have been contributing factors to the upside. EUR/USD is contained within Friday's 1.1544-72 range.

JPY: USD/JPY U/C; 144.75

• USD/JPY was initially lifted during APAC trade with haven flows from geopolitics short-lived as Japanese PM Ishiba and US President Trump failed to reach a tariff agreement. Additionally, Japanese Finance Minister Kato added that there is no fixed plan right now to hold further talks with US Treasury Secretary Bessent. Thereafter, the pair saw downticks on the BoJ decision which saw the Bank stand pat on policy (as expected) and announce a reduction in the amount of monthly JGB purchases by about JPY 200bln each quarter from April 2026 onward. Some drew attention to the hawkish dissent from Tamura as well as a near-term increase in the taper of short-term JGBs. During Ueda's press conference, JPY strength faded with the CB head stating that the Bank judged that downside risks are bigger for the economy and prices. USD/JPY currently sits towards the middle of its 144.41-145.11 range.

GBP: GBP/USD -0.1%; 1.3563

• GBP is fractionally softer vs. the USD and EUR after seeing some choppy price action following the US and the UK formally signing their trade agreement. The details of which mean that the US tariff on UK steel is to remain at 25%, for now. Inflation data for May hits on Wednesday and is expected to show headline Y/Y CPI hold steady at 3.5%, with the services component set to decline to 5.0% from 5.4%. The release is unlikely to have any bearing on the BoE policy announcement the following day with the MPC widely expected to keep policy steady with dovish dissent from Dhingra and Taylor. Last week's soft labour market and growth metrics have prompted concerns over the BoE potentially falling behind the curve. However, the MPC is unlikely to ditch “gradual and careful” approach to policymaking with inflation set to rise in the coming months. GBP/USD is currently contained within yesterday's 1.3535-1.3622 range.

Antipodeans: AUD/USD +0.3%; 0.6540. NZD/USD +0.2%; 0.6071

• Both slightly firmer vs. the USD and at the top of the G10 leaderboard in an extension of the price action with both risk-sensitive currencies overlooking the downside in stocks. From a macro perspective, focus this week will be on NZ Q1 GDP metrics on Wednesday and Australian labour market data on Thursday. AUD/USD is currently just below yesterday's YTD peak @ 0.6552, whilst NZD/USD is also below its respective 2025 high @ 0.6087.

17 Jun 2025 - 10:20- ForexEU Research- Source: Newsquawk