GBP/USD Tumbles Ahead of BoE Monetary Policy Report Hearings

GBP/USD lost momentum near 1.3514 as investors await the BoE Monetary Policy Report Hearings before Parliament. Market expectations suggest that the Bank of England (BoE) will continue its easing of monetary policy in June, driven by a stronger-than-anticipated UK Consumer Price Index (CPI) and robust growth in UK Retail Sales for April, influencing the pound. According to the latest figures released by S&P Global, the seasonally adjusted UK Manufacturing Purchasing Managers’ Index (PMI) rose to 46.4 in May, up from April’s 45.4 and exceeding the previous flash estimate of 45.1. However, the sector has stayed below the neutral 50.0 threshold for the eighth consecutive month. Catherine Mann, a hawkish member of the Bank of England’s Monetary Policy Committee (MPC), stated that the bank should closely monitor the effects of its quantitative tightening (QT) programme on monetary and financial conditions, particularly considering the recent interest rate cuts. Mann emphasised that “now that the MPC is reducing restrictiveness, we need to consider the differing effects of our policies on different parts of the yield curve and their effects on monetary policy transmission as a more salient issue.”

On the other hand, the deteriorating fiscal situation in the US and escalating US-China trade tensions have put downward pressure on the US dollar. President Donald Trump has threatened to increase import tariffs on steel and aluminium, raising them from 25% to 50%, effective Wednesday. He has accused China of delaying approvals for rare earth exports to the US. China responded by asserting that it is following the agreed timelines in Switzerland and accused the US of breaching trade agreements by imposing new technology export restrictions aimed at China. Although Trump’s officials insist that trade discussions are progressing, it is evident that tensions between the nations are rising. Regarding economic indicators, the Institute for Supply Management (ISM) survey released on Monday showed that US manufacturing activity decreased for the third consecutive month in May, with the ISM Manufacturing PMI dropping to 48.5 from April’s 48.7, which was below analysts’ predictions of 49.5. The Employment Index showed a slight increase to 46.8 from April’s 46.5, suggesting payroll growth is accelerating in the sector. Meanwhile, the Prices Paid Index, a measure of inflation from the survey, decreased slightly to 69.4 from 69.8. Additionally, the New Orders Index rose to 47.6 from 47.2 in April. On Monday, Austan Goolsbee, President of the Chicago Federal Reserve Bank, stated his belief that the Fed would likely reduce short-term rates once the uncertainty regarding tariff policies is clarified.

Investors will closely scrutinise comments from BoE Governor Andrew Bailey and other Monetary Policy Committee (MPC) members for cues about the policy outlook and US JOLTS Job Openings for further insights on the GBP/USD exchange rate.

AUD/USD Subdued Ahead of JOLTS Job Openings

AUD/USD fell to 0.6458 following the release of the Reserve Bank of Australia’s (RBA) Meeting Minutes. The RBA Minutes from its May monetary policy meeting suggested that the board viewed the case for a 25bps cut as stronger, preferring a cautious and predictable policy. The policymakers highlighted that US trade policy posed a significant adverse impact on the global outlook but had not yet affected the Australian economy. However, they did not argue that a 50bps cut was necessary, as US tariffs had not yet influenced the Australian economy. In terms of the domestic situation, inflation remains below the midpoint of the target band, and the labour market remains tight. The board agreed that developments in the domestic economy alone warranted a rate cut. However, the board judged that it was not yet time to shift monetary policy to an expansionary setting, which might be required if the worst global trade scenarios materialised. On Tuesday, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter cautioned that “higher US tariffs will put a drag on the global economy.” She underscored that “a weaker global growth environment would moderately reduce prices for tradable goods. Increased uncertainty could result in declines in investment, output, and employment. A rise in global uncertainty has a significant negative impact on Australian business investment. However, Australia’s exporters are generally well-equipped to navigate these challenges, assuming that Chinese authorities will bolster their economy through fiscal stimulus.”

On the domestic front, ANZ Job Advertisements decreased by 1.2% in May, following a revised decline of 0.3% in April. This represents the second consecutive month of reduction in Australian job ads. Additionally, the S&P Global Manufacturing Purchasing Managers’ Index (PMI) fell to 51.0 in May from 51.7 the previous month, also indicating a decline for the second month running and reaching its lowest level since February. China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) unexpectedly decreased to 48.3 in May, down from April’s 50.4, and fell below market expectations of a 50.6 expansion. However, data released over the weekend indicated that the National Bureau of Statistics (NBS) Manufacturing PMI increased to 49.5 in May, up from 49.0 in April. In contrast, the Non-Manufacturing PMI dropped to 50.3 from the previous 50.4 reading, also missing the anticipated 50.6. Furthermore, China’s Ministry of Commerce announced on Monday that the country has adhered to the agreement by cancelling or suspending the tariff and non-tariff measures related to the US reciprocal tariffs.

On the greenback’s front, renewed concerns over the worsening US fiscal situation and persistent US-China trade tensions could undermine the US dollar. The US ISM Manufacturing Purchasing Managers’ Index (PMI) decreased to 48.5 in May from 48.7 in April, indicating the most significant contraction since November 2024 and highlighting ongoing weakness in the sector. Moreover, the rising market anticipation that the Federal Reserve (Fed) may reduce borrowing costs again this year, alongside signs of easing inflation, could further weaken the US dollar.

Investors will focus on the US JOLTS Job Openings data, along with speeches by influential FOMC members, for insights on the AUD/USD exchange rate.

EUR/JPY Slips Ahead of Eurozone HICP Inflation Data

EUR/JPY weakened to 162.81 as investors brace for the Eurozone Harmonised Index of Consumer Prices (HICP) data. On Monday, the EU declared that it would firmly support the US in lowering or eliminating tariffs, despite Trump’s announcement of a 50% rise in import duties on steel and aluminium, scheduled to take effect on Wednesday. Traders are closely monitoring the US-EU negotiations, as the Trump administration has requested that its trading partners submit their best proposals to conclude agreements by 8 July. Any signs of advancement in trade talks could alleviate the losses of the shared currency. Moreover, market expectations that the European Central Bank (ECB) will reduce the key interest rate by 25 basis points and that ECB President Christine Lagarde will maintain a neutral stance through the policy meeting could further undermine the shared currency.

On the yen’s front, market speculation that the Bank of Japan (BoJ) will stick to the path of monetary policy normalisation amid the broadening inflation in Japan and the bets were reaffirmed by BoJ Governor Kazuo Ueda’s remarks in parliament. Moreover, persistent geopolitical risks stemming from the protracted Russia-Ukraine war and rising trade tensions further support the yen. On Monday, Japanese Prime Minister Shigeru Ishiba indicated that he might dissolve the House of Representatives to call for a snap general election if the main opposition party presents a no-confidence motion, according to reports. The reports also mentioned that Ishiba might act before any no-confidence vote takes place in the chamber. If a no-confidence motion is submitted and passes, the Prime Minister must disband the lower house, or the entire cabinet must resign within ten days. On Tuesday, former Bank of Japan board member Makoto Sakurai indicated that the central bank is likely to stop its quarterly cuts in government bond purchases starting next fiscal year. Sakurai expressed concerns that ongoing reductions might lead to higher yields, complicating economic and government debt management. Earlier today, BoJ Governor Kazuo Ueda reaffirmed that the bank will persist in increasing interest rates if the economy and inflation align with forecasts. However, Ueda advised that it is crucial to assess the situation without preconceived notions, as uncertainties regarding foreign trade policies and economic conditions remain very high.

In today’s session, the Eurozone Harmonised Index of Consumer Prices (HICP) data will be a key driver of the EUR/JPY exchange rate.

USD/CHF Struggles Amid Rising Safe-Haven Demand

The USD/CHF depreciated to near 0.8179 as cautious global sentiment following tariff uncertainty and persistent geopolitical tensions in the Middle East reignited demand for safe-haven currencies like the Swiss Franc (CHF). Stronger-than-expected first-quarter Gross Domestic Product (GDP) figures and a softer Retail Sales print further supported the Swiss Franc. Switzerland’s economy grew by 0.5% quarter-over-quarter, an increase from a revised 0.3% in the previous quarter, surpassing market expectations of 0.4%. Year-on-year, GDP rose by 2.0%, up from 1.6%, and exceeded the anticipated 1.5% growth. This stronger performance was supported by robust gains in manufacturing, which grew by 2.1% in Q1, following a 1.2% rise in Q4. The construction sector also recovered, registering a 1.1% increase after stagnation in the last quarter. In addition, trade, motor vehicle repair, and motorcycle activity surged by 2.1%, a significant jump from just 0.3% in Q4, highlighting widespread growth across essential sectors. In April, retail sales in Switzerland rose by 1.3% year-on-year, down from a 2.2% increase in March and falling short of the expected 2.5% rise. This dip suggests that consumers may be becoming more cautious despite signs of broader economic strength.

On Tuesday, the Federal Statistical Office announced that the Consumer Price Index fell by 0.1% year-on-year in May, as anticipated, after remaining unchanged last month. This marks the first decline since April 2021. Prices for food and non-alcoholic beverages dropped by 0.3% annually in May, while transportation costs fell by 3.7% compared to last year. Conversely, housing energy prices increased by 1.1%. Excluding food and energy, core inflation moderated to 0.5%, down from 0.6% the previous month. Month-on-month, consumer prices inched up by 0.1%, contrasting with no change in April. Mixed economic data, along with modest deflation risks, have boosted market expectations of a rate cut to zero in June’s policy meeting, as well as the Swiss National Bank (SNB) monetary policy’s future outlook.

Conversely, ongoing concerns about US President Donald Trump’s aggressive tariff policies and fears that the global economy may experience slower growth, particularly due to inflationary pressures stemming from increased import costs, continue to exert pressure on the dollar. Economic activity in the US manufacturing sector lost momentum in May, with the ISM Manufacturing PMI declining to 48.5 from 48.7 in April, falling short of analysts’ estimates of 49.5. The Employment Index rose slightly to 46.8 from 46.5 in April, indicating that the sector’s payrolls are growing at a faster pace. Meanwhile, the Prices Paid Index, the survey’s inflation component, eased slightly to 69.4 from 69.8. Additionally, the New Orders Index increased to 47.6 from April’s 47.2. The President of the Federal Reserve (Fed) Bank of Dallas, Lorie Logan, struck a cautiously balanced tone in earlier remarks, acknowledging both persistent inflation pressures and rising market uncertainty.

Broader market sentiment around the US ISM Manufacturing Purchasing Managers’ Index (PMI), Fed Chair Jerome Powell’s speech, tariff uncertainty and persistent geopolitical tensions will influence the USD/CHF exchange rate.