US FX WRAP: Dollar hit by EUR strength and soft US PPI

Analysis details (20:30)

The Dollar was on the back foot into the US session, with EUR optimism heavily weighing. Weakness against peers continued in the wake of the soft US PPI report, signalling a similar theme on US prices seen in Wednesday's CPI report. Despite the growing turmoil in the Middle East, the Buck remained offered against G10 peers, and some EMs as its attractive safe-haven status dwindles. Officials in both Iran and the US highlight a potential Israeli attack on Iran. US President Trump said an Israeli strike is not imminent but "looks like it could happen". As mentioned, US PPI was soft, yet with consecutive upward revisions to the prior print. Meanwhile, job data showed initial claims remaining steady at 248k while continued claims surged well above expectations to 1.956mln, the highest reading since November 2021. Trade updates came by way of Trump, who is to set unilateral tariff rates within two weeks and will send out letters in a week and a half to countries to take or leave, presumably regarding final deal offers. Prelim UoM on Friday for June is the US highlight.

G10FX was entirely in the green on said USD weakness. Newsflow was generally light, with movement a function of USD, while EUR headlines were once again dominated by ECB speakers. ECB's de Guindos said the use of the US dollar in international funding, payments, or as a reserve currency will not be challenged in the near term. On monetary policy, ECB's Simkus said they have arrived at the neutral rate, but easing may still come due to the increased risk of inflation being below expectations. EUR/USD now sits at new YTD highs, despite retreating from the session high of 1.1631 back to the 1.15 handle. 

GBP was weighed by continued data signalling the BoE is potentially behind in its easing cycle, according to some desks. UK GDP M/M contracted by 0.3% in April more than the expected -0.1% with GDP services also falling by 0.4% (exp. unch); mfg output was also beneath expectations. Cable still benefitted GBP, now residing around 1.36, whereas EUR/GBP rallied above 0.85.

Antipodes both saw decent gains, erasing Wednesday's underperformance. ING says the narrowing rate differential of AUD relative to NZD means periods of calm in risk assets can favour NZD more than AUD for the remainder of the year. "For now, we stick with our short-term targets of 0.66 in AUD/USD and 0.61 in NZD/USD". 

Havens strengthened off the back of USD weakness, increased geopolitical concerns and a favourable US Treasury curve. CHF outperformed the Yen, with USD/CHF approaching 0.8100. Gold was helped by said factors, hitting USD ~3,386/oz

EM performance was mixed, with upside in the COP, CLP, HUF, and PLN. Updates came via the NBP's Kotecki, noting the main rate could fall to 4.75%, perhaps to 4.5% at the end of 2025. This is a more hawkish view when compared to money market pricing, which has the main rate at ~4.37% by year-end. Meanwhile, CNB's August meeting may bring opposing views on whether a further rate cut is warranted; may see another 25 bps easing in August, depending on developments. 

12 Jun 2025 - 20:30- ForexData- Source: Newswires