• It’s very unusual for ECB members to talk on the level of the single currency. It’s even more unusual that they do so in group. ECB vice governor de Guindos, Kazaks and Simkus used the sidelines of the ECB’s annual forum in Sintra to share their views. The vice governor started with the mandatory disclaimer that the ECB is monitoring it, but not targeting any concrete level. De Guindos nevertheless went as far as mentioning specific levels: “I think that EUR/USD 1.17, even 1.20 is not something. We can overlook it a little bit. Something beyond that would be much more complicated, but 1.20 is perfectly acceptable.” We’re not sure if it was the wisest move to point this out so specifically to markets/investors. Don’t poke the bear. Recall that higher EUR/USD forecasts together with a lower projected path for oil prices prompted significant (0.3 ppt) downward revisions to headline CPI this year (2%) and next (1.6%), enabling the final (our interpretation) policy rate cut to 2%. ECB Kazaks said that if the euro was to significantly appreciate further, it would weigh down on inflation and exports and could tilt the balance towards another cut. ECB Simkus wasn’t so worried about the actual level of the EUR/USD exchange rate, but did warn about the pace of recent appreciation. German Bundesbank Nagel offered some counterweight by downplaying the “historically average FX-level”. As we finish this report, the panel debate with ECB president Lagarde, Fed president Powell, BoE governor Bailey, BoJ Ueda and BoK governor Rhee is ongoing. Some (mostly non-market) moving excerpts: ECB Lagarde clearly indicated that she wouldn’t specifically comments on the level of the euro. BoE Governor Bailey repeated early signs of weakening of the UK economy and labour market though it didn’t filter through (in inflation) yet (GBP marginally underperforming); EUR/GBP 0.86). Fed chair Powell acknowledged that US policy rate would have been lower by now if it wasn’t for the tariff uncertainty. Of which he expects to see impact in Summer inflation readings. BoJ governor Ueda sees a slow increase in underlying inflation towards the 2% target (wage-consumption dynamics & tariff-combined) with food inflation (driven by administered prices) expected to subside by year-end. Today’s eco data included in line with consensus EMU June inflation numbers (0.3% M/M & 2% Y/Y; 2.3% for core) a near-consensus US manufacturing ISM (49 from 48.5 vs 48.8 expected) though with some worrying details (pace of job shedding and decline in new orders accelerating; sticky price pressure) and a stronger JOLTS report. US Treasuries were already under (selling) pressure in the run-up to the releases and currently lose more ground (up to 5 bps higher in bear flattening move). In the meantime, there’s still no white smoke coming from US Senate on their version of the One Big Beautigfil Bill Act.
News & Views
• Consumer inflation expectations for the year ahead measured by the ECB’s monthly survey retreated from 3.1% to 2.8% in May. This compares to the perceived 3.1% for the past 12 months. The 3-year and 5-year ahead gauge slipped 0.1 ppt to 2.4% and remained unchanged at 2.1% respectively. Expectations for income growth in the coming year grew from 0.9% to 1% while those for spending growth eased to 3.5% from 3.7%. Consumers turned less negative on year ahead economic growth (-1.1% from -1.9%) as well as on the labour market (unemployment rate seen at 10.4% from 10.5%). Finally, respondents anticipate home prices to rise 3.2%, while seeing slightly lower mortgage rates for the 12 months ahead (4.4%). Households reporting a tightening (relative to those reporting an easing) in access to credit declined both over the previous and for the next 12 months.
• The Czech manufacturing PMI in June improved from 48 to 50.2 in what is the first 50+ reading since May 2022. Growth, although modest, was supported by the sharpest increase in production since February 2022, an improvement in client demand (especially domestically) and a renewed rise in new orders. New export orders continued to decline amid competitive challenges and waning customer interest in key markets. Employment fell further as well amid cost-cutting efforts but at the slowest pace in the 33-month job shedding period. Work backlogs, however, rose again, moving into a three-month streak. Input costs continued to increase, though at a historically muted and slower pace than May. Output charges decreased marginally for the first time in four months with companies citing intense competitive pressures. Czech swap yields tumble between 3-8.3 bps, following core markets in a bull flattening move today. The Czech crown ignores the loss of interest rate support to hit another two-year high against the euro. EUR/CZK trades around 24.7.
Graphs
EUR/CZK: koruna ignores loss of interest rate support after weak Czech manufacturing PMI
EU 2y swap rate loses some bps today as ECB governors warn on impact of euro strength
EUR/USD: first 1.18+ levels since H2 2021
Nasdaq: new quarter starts with some profit taking at all-time record high
Table
Contacts
Register to get a 2 week free Squawk trial and 7 Day free Matrix trial today.
Sunrise market commentary KBC Sunrise Tuesday, July 1, 2025 Please click here to read the PDF version Market Commentary Markets • The US dollar capped the first half of 2025 with the weakest performance YtD Read more…
KBC Sunset KBC Sunset Monday, June 30, 2025 Daily Market Overview Click here to read the PDF-version of this report Markets • The European opening session of the week developed quiet and orderly. Trading settings Read more…
Sunrise market commentary KBC Sunrise Monday, June 30, 2025 Please click here to read the PDF version Market Commentary Markets • US yields looked for and found a bottom after a two-week slide in which Read more…
0 Comments